A Principal-Agent Problem Occurs When Hiring Workers to Work for a Firm

question 327

Multiple Choice

A principal-agent problem occurs when hiring workers to work for a firm because

• A) workers' interests are not always the same as the interests of the owners of the firm.
• B) workers do not respond to incentives.
• C) the owners of a firm are always in a position to exploit the workers.
• D) workers' interests are not important in the managerial decisions of the firm.

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Definitions:

Book Value

The net value of a company's assets, minus its liabilities and intangible assets such as goodwill.

Shareholders' Equity

The residual interest or ownership value remaining in a company's assets after deducting liabilities, representing the shareholders' stake in the company.

Statement Of Financial Position

Statement of Financial Position, commonly known as a balance sheet, is a financial statement that summarizes a company's assets, liabilities, and shareholders' equity at a specific point in time.

Net Working Capital

An indicator of an organization's short-term financial stability, operational effectiveness, and ability to cover short-term obligations, determined by subtracting current liabilities from current assets.