An agency problem exists when managers place personal goals ahead of corporate goals. SinceStanley owns 40% of the outstanding equity, it is unlikely that an agency problem would arise atTrack Software.
There is always potential for any agency problem. Should Stanley decide to invest in the software developer, an investment of this nature could cause decrease in earnings per share for the firm and that means fewer earnings at the present time for stakeholders. Let’s say for instance that the shareholders’ goals are to earn money at the present time, so money now instead of later, so that would be a problem. However if the shareholders’ goals are to maximize wealth over time, then there may not be an issue as they don’t need the wealth and earnings at the present state as Stanley’s job is the same as the shareholders at this point.
There is potential for an agency problem if Stanley decides to go ahead and invest in thesoftware developer. This investment will cause a temporary decrease in the earnings per share (EPS) of the firm which will mean fewer earnings at the present time for thestakeholders. This may be a problem if the goal of the shareholders is to gain moneysooner than later. However, it the goal of the shareholders is simply to maximize wealth,there may not be an agency problem since the goal of the financial manager, Stanley, is the
same as the shareholders’