In an Owner-Manager Agency Relationship the Problem of Risk Aversion

question 1

Multiple Choice

In an owner-manager agency relationship the problem of risk aversion arises because:

• A) shareholders prefer the managers to take fewer risks in order to maximise the returns on their investment.
• B) managers prefer to make decisions that are less risky for the entity as they have more to lose than the shareholders.
• C) managers have less capital invested in the entity than shareholders.
• D) shareholders generally have no other sources of income.

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Definitions:

Positive Facets

Characteristics or aspects of a situation, individual, or concept that are beneficial or advantageous.

Followers

Individuals who align themselves with a leader or group, often supporting and being influenced by the leader's actions and decisions.

Powerful

Having great influence, authority, or force over others or situations.

Leaders

Individuals who guide, influence, or direct others within an organization or group to achieve collective goals.