Conflicts of Interest Between Shareholders and Managers of a Firm

question 19

Multiple Choice

Conflicts of interest between shareholders and managers of a firm result in:

• A) Principal-agent problem
• B) Increased agency costs
• C) Both A and B
• D) Managers owning the firm

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Definitions:

Primary Market

The primary market is the financial market where new securities are issued and sold for the first time, directly from the issuer.

Secondary Market

A marketplace where investors buy and sell securities or assets that have been previously issued, often through exchanges or over-the-counter markets.

Equity Carve-Outs

The process by which a parent company sells a portion of the equity in a subsidiary to public investors.

IPO

Initial Public Offering is the process by which a private company becomes publicly traded by offering its shares for sale to the general public for the first time.