The Root Cause of the Principal-Agent Problem Between Senior Executives

question 7

Multiple Choice

The root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the

• A) informational advantage of the lower-level employees.
• B) higher number of lower-level employees than senior executives.
• C) knowledge of employees regarding day-to-day tasks.
• D) operational expertise of lower-level employees in concentrated areas of a particular field.

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Definitions:

Debt/Equity Ratio

A gauge illustrating the financial reliance of a company on debt versus equity for asset support.

Long-Term Debt Ratio

The long-term debt ratio measures the proportion of a company's total debt that is due in more than one year, indicating the extent to which a company relies on long-term borrowing for its financing needs.

Total Debt

The sum of all owed money by an entity, including short-term and long-term liabilities.

Receivable Turnover

A financial ratio that measures how efficiently a company collects its accounts receivable.