Agency theory would imply that conflicts are more likely to occur between management and shareholders when?

Question

Agency theory would imply that conflicts are more likely to occur between management and shareholders when?

Answer 1

The interests of the management do not coincide with the interests of the shareholders. For example: the recent proposed buyout of Yahoo! by Microsoft. It was probably in the best interest of shareholders for the management to accept the offer from Microsoft, however the management didn't want to lose their jobs / power / etc. by being taken over.

Answer 2

Agency theory suggests that conflicts occur when the interests of management and shareholders diverge, thereby incenting management to take actions that are not in the best interest of shareholders.  That is, the managers of the company are making decisions that benefit themselves more than they benefit the ownership of the company.

Examples include poison pills and other anti-takeover devices which prevent shareholders from receiving greater value for their shares, typically to protect management's jobs.