The principal-agent problem in corporations exists because the managers of a fir

Question

The principal-agent problem in corporations exists because the managers of a firm 0 A. may pursue their own goals even when the result is lower profit for owners O B. may know how to operate the business better than absentee owners do, and yet not be allowed to. ° C. are generally unable to monitor workers, who do not care about the profits due the managers. 0 D. are generally unable to do the monitoring that would result in the firm's avoiding moral hazard problems. . E. are generally unable to do the monitoring that would result in the firm's avoiding adverse selection.

Explanation / Answer

answer is option (a) may pursue their own goals even when the result is lower profit for owners

explanation

the managers are responsible for protecting the interests of the equity holders in the corporation.

agency problem typically arises in situation where this seperation along with the self interest leads managers to act in ways other than in the interest of the shareholders .this situation arises because of little incentives to work and keep up with thier morals .

various controlls are being implemented to reduce the agency problem are

# performance based incentives

# profit sharing

# stock holding

# compensation

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