The Principal-Agent Problem Refers to the Fact That Firms Must

question 330

Multiple Choice

The principal-agent problem refers to the fact that firms must

• A) choose between economic efficiency and technological efficiency.
• B) choose between a managerial and an incentive system.
• C) devise incentives to get employees to work in the best interest of the firm's owners.
• D) choose between operating as a partnership or corporation.

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Definitions:

Proper Purpose

Acting with a legitimate objective, especially in the context of corporate governance where actions should align with the best interests of the company and its shareholders.

Shareholders

Individuals or entities that own shares in a corporation, making them part owners of the company with certain rights and responsibilities.

Proxy

A person authorized to act on behalf of another, especially in voting at a meeting or in corporate matters.

Agency

A relationship where one party (the agent) is authorized to act for another (the principal) in dealings with third parties.