Multi-agency Problem in Financial Markets

Abstract

Multi-Agency problem occurs in Financial Markets, when multiple companies face agency problems at the same time, in different companies. It happens, when different shareholders’ types entering in conflict in order to maximise their benefits. This article explores the agency conflict between controlling shareholders and minor shareholders. This type of conflict arises from arbitrary power that sometimes major shareholders have, over small ones. In order to understand this multilateral conflict occurring in different companies, at the same time, it was created a multi-agent model where different agents’ type interact each other in an artificial financial market. The interaction occurs under the assumptions of a game theory, which means that multiple games happen among shareholders in different companies at the same time. In this specific study, we also added the agent who retaliates to the incursions of other agents. This article analyses the type of agents that constantly “wins the fights” in distinct scenarios previously simulated. After several simulations, it could be concluded that the initial structure of shareholders in a companies has impact in how the multiple games end up. Another important result that was achieved is about the gap between the value to be distributed among shareholders and consequent agency costs. Shareholders give more relevance to the value rather than agency costs that they can face out. This means that if the gap is negative because of the value, the shareholders may abandon the market and the same doesn’t happen, when it comes from a raise of the agency costs.