The Principal-Agent Problem Is Quite Common in Large Public Corporations

question 102

Multiple Choice

The principal-agent problem is quite common in large public corporations due to:

• A) the fact that large corporations generate large sales volumes.
• B) the fact that large companies employ many people.
• C) too little regulation by government.
• D) the fact that the people making the operational decisions are usually not the owners.

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Definitions:

Reduction In Risk

A decrease in the probability or impact of negative outcomes, often sought through insurance, safety measures, or other precautions.

General Motors

An American multinational corporation headquartered in Detroit that designs, manufactures, markets, and distributes vehicles and vehicle parts.

Diverse Portfolio

An investment strategy whereby an individual holds a variety of different investments to reduce risk through diversification.

Stock Market

A public market for buying and selling company stock and derivatives at an agreed price.