The Principal-Agent Problem Arises

question 20

Multiple Choice

The Principal-Agent Problem arises:

• A)because managers have little incentive to work in the interest of shareholders when this means working against their own self-interest.
• B)because of the separation of ownership and control in a corporation.
• C)Both A and B
• D)None of the above

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Definitions:

Lease

A contractual arrangement in which a lessee agrees to pay the lessor for the use of an asset for a specified period of time.

Legal

Pertaining to the law or the legal system, encompassing various legal matters, processes, and institutions.

Direct Financing Lease

A leasing arrangement where the lessor purchases an asset and leases it to the lessee, effectively acting as a financier by not transferring ownership.

Operating Lease

An agreement permitting the utilization of a property without transferring ownership rights to it.