A large corporation suffers from the principal-agent problem when its:

a. shareholders sacrifice long-term growth for short-term profits.

b. board of directors ties the salaries of management exclusively to the profits of the firm.

c. stock shareholders sell firm assets to increase dividend payments.

d. management does not own a large share of firm stock and pursues its own interests rather than those of shareholders.

e. chief executive officer runs the day-to-day operations of the corporation while simultaneously sitting on the board of directors.

Question

Sherlyn Cannon

Business

31 July, 00:34

A large corporation suffers from the principal-agent problem when its:

a. shareholders sacrifice long-term growth for short-term profits.

b. board of directors ties the salaries of management exclusively to the profits of the firm.

c. stock shareholders sell firm assets to increase dividend payments.

d. management does not own a large share of firm stock and pursues its own interests rather than those of shareholders.

e. chief executive officer runs the day-to-day operations of the corporation while simultaneously sitting on the board of directors.

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Answers (1)

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Darius Duran · Answer 1

The correct answer is d. management does not own a large share of firm stock and pursues its own interests rather than those of shareholders. When management pursues its own interests, there is a conflict with the interest of the shareholders who hired the management in the first place.