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3. Agency conflicts between managers and shareholders Aa Aa Remember, an agency relationship can degenerate into an agency conflict when an agent acts in a manner that is not in the best interest of his or her prindipal. In large corporations, these conflicts most frequentdy involve the enrichment of the firm's executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely to occur when shareholders do not have sufficient information about the dedisions and actions being made by the firm's management. Consider the following scenario and determine whether an agency confict exists Alexander and Akiko equally own and manage A New Beginning (ANB), a store that sells preowned clothing and furniture. Alexander is responsible for ANB's back-office activities, and Akiko staffs the store and makes deliveries to customers. Both have equal decision-making authority and, under the terms of their partnership agreement, both are prohibited from making personal purchases using company funds without prior approval of the ather partner. Alexander, without Akiko's knowledge, used the company's bank account recently to purchase a new sports car. Alexander has acknowledged that the car will nat be used to support the business. Is this a pobential agency conflict between Alexander and Akiko? O No; Alexander and Akiko are both authorized to spend ANB's money, so no conflict of interest can occur. O Yes; Alexander is misappropriating some of Akiko's wealth by ateally purchasing a nonbusiness asset using ANB's funds. O Yes; it should have been Akiko who purchased the car. O No; Alexander and Akiko co-own and co-manage ANB and have a partnership agreement that makes them equal, so an agency conflict cannot exist. 3. Agency conflicts between managers and shareholders Aa Aa Remember, an agency relationship can degenerate into an agency conflict when an agent acts in a manner that is not in the best interest of his or her prindipal. In large corporations, these conflicts most frequentdy involve the enrichment of the firm's executives or managers (in the form of money and perquisites or power and prestige) at the expense of the company's shareholders. This usurping and reallocation of shareholder wealth is most likely to occur when shareholders do not have sufficient information about the dedisions and actions being made by the firm's management. Consider the following scenario and determine whether an agency confict exists Alexander and Akiko equally own and manage A New Beginning (ANB), a store that sells preowned clothing and furniture. Alexander is responsible for ANB's back-office activities, and Akiko staffs the store and makes deliveries to customers. Both have equal decision-making authority and, under the terms of their partnership agreement, both are prohibited from making personal purchases using company funds without prior approval of the ather partner. Alexander, without Akiko's knowledge, used the company's bank account recently to purchase a new sports car. Alexander has acknowledged that the car will nat be used to support the business. Is this a pobential agency conflict between Alexander and Akiko? O No; Alexander and Akiko are both authorized to spend ANB's money, so no conflict of interest can occur. O Yes; Alexander is misappropriating some of Akiko's wealth by ateally purchasing a nonbusiness asset using ANB's funds. O Yes; it should have been Akiko who purchased the car. O No; Alexander and Akiko co-own and co-manage ANB and have a partnership agreement that makes them equal, so an agency conflict cannot exist