What Role Does Reputation Have in Solving Principal-Agent Problems

question 5

Multiple Choice

What role does reputation have in solving principal-agent problems?

• A) There is no effect on reputation.
• B) Reputations enable principals to pick better agents.
• C) Reputation is the only solution to principal-agent problems.
• D) Reputations enable agents to pick better principals.
• E) Principals pay no attention to the reputation of agents.

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Definitions:

Net Operating Working Capital

A financial metric that calculates the difference between a company's operating current assets and its operating current liabilities.

Current Assets

Assets on a balance sheet expected to be converted into cash, sold, or consumed within one year or the business cycle, whichever is longer.

Current Liabilities

Current Liabilities are a company's debts or obligations that are due to be paid to creditors within one year, including accounts payable, short-term loans, and other short-term financial obligations.

Investor-Supplied Operating Assets

Assets provided by investors for the purpose of generating sales and profits for the business, such as plant, equipment, and inventory.