Information Asymmetry and Agency Problems in the Financial Market

Abstract

This paper discusses that the agency problem stems from the information asymmetry between shareholders and professional managers, this comes from the fact that shareholders cannot have expertise in every aspect. Therefore, in the actual operation of the company, it is necessary to hire professional managers to manage the company. However, at the same time, the two parties with asymmetric information have different ways of income. The professional manager whose income mainly comes from a fixed salary is bound to be more interested in short-term development than like the shareholders. The reason. The main income is profiting sharing and future asset appreciation. As a result, managers will not value long-term development as much as shareholders. As well as this paper will discuss whether it can minimize the agency cost by changing the remuneration method of professional managers to equity incentive value. This paper will also discuss the feasibility and possible problems by having directors directly involved in the management of the company, or creating a regulator to oversee the professional managers.