 In this section, I am going to discuss that how people decide between debt and equity when they want to avoid the concept of moral hazard. So moral hazard means that if you are lending, if you are giving money to people who are using, who are not very diligently or respectfully going to utilize your money, they may end up in taking, using your money in a highly risky financial investments or they might end up in investing your money because it's not their money. It's your money. It's being lent by the financial institution, for example, or by some other company or a firm. So they might end up investing in that kind of investment opportunities where there is a very high level of risk attached. That type of, that type of situation is called moral hazard. Like this means that if we use something that is not ours, then we don't keep it very lovingly or carefully. We don't even use it well. Same is the case with the investments. If you are utilizing somebody else's money and the money is not your own, then you will not spend it carefully or carefully for that kind of investment decisions. If you know that this money belongs to someone else, then there is a high probability that you will invest in those kinds of investment opportunities with which there is a very high level of risk attached. So equity contracts, basically, or as we talk about common stocks, which are equity contracts, we share the investment that we invest in the profit and the assets that we share. So the problem is that because of moral hazard, sometimes it has been observed that there is the principal agent problem that is experienced in this context. And the principal agent problem is that when you have bought any company's shares, you are its primary shareholder, or for example, you have sold 60% of any company's assets in the market. That particular company or 49% shares are sold in the market. To run that company, they will hire a manager. And the manager will make his own decisions. They always, it has been observed that when managers make decisions about any company, they always consider their own personal benefits. They see that the indicators on which my performance is going to be evaluated, or the perks and benefits that I have, how can I enjoy them more? They don't take such steps or measures or decisions, which will benefit the shareholders. So they do not decide to maximize the value for the shareholders. So what do they do? There are problems that have been identified. To explain the principal agent problem, people have done a lot of research and said that what managers do, they make fancy offices and show their expense. And then what they do? They do meetings or holidays. So they will take very expensive holidays or if they want to do meetings, for example, if their office is in Lahore or in Karachi, they have a workshop or training workshop, they go to Burban. They take 5-3 days stay in Burban, 3 days stay in Burban, they go there for meetings. So what did they do? They increase the expenses of the company. Similarly, they take international travel for the company because they have to make their own decisions. So what would they do? They spend a lot of money on themselves. They make expensive offices, they do their lifestyle, they buy a car, they keep a chauffeur, they keep an expensive driver, they use expensive gadgets, like a very expensive laptop, mobile phone, etc. But by doing this, all these expenses are being counted. And by doing this, the profit of the shareholder who is going to benefit by the end of the year will be reduced. There is a conflict of interest. What does conflict of interest mean? The manager tries to maximize his objectives and meet them. And the objective of the shareholders doesn't meet them. What is the objective of the shareholders? They want us to get a return and the stocks we have bought and the return we will get will be maximized. The objective of the manager is different. The objective of the stockholders are not decision makers. So we call this particular phenomenon as the principal agent problem. So the principal agent problem is basically why it is being created because there is separation of ownership and control. So the manager has control. He is making all those decisions and who has ownership and stockholders can't make those decisions. So because of this conflict between the two because of this conflict moral hazard is there. We experience moral hazard. And what will happen to that that the objectives of the stockholders or the owners of the firm won't meet them. And the manager will make all those decisions which will be better for them personally and a better standard of life. Because he is the he is basically the controller of all the decision making he is controlling whatever is happening and therefore he is known as the agent or the principal agent means the principal is the owner and the agent has different objectives and you have to observe moral hazard and control.