The Principal-Agent Problem

question 122

Multiple Choice

The principal-agent problem

• A) occurs when managers have more incentive to maximize profits than the stockholders-owners do.
• B) would not arise if the owners of the firm had complete information about the activities of the managers.
• C) in financial markets helps to explain why equity is a relatively important source of finance for American businesses.
• D) all of the above.
• E) only A and B of the above.

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Definitions:

Self-Empowerment

The process of gaining strength, confidence, and a sense of control over one's life, leading to the pursuit of personal goals and self-improvement.

Enforceable Means

Strategies or methods that can be legally or effectively executed to ensure compliance or adherence to rules.

Social Structural Characteristics

The organized patterns and systems within a society that determine social interactions, roles, and expectations.

Empowering Environment

A setting or culture that encourages individuals to take initiative, make decisions, and contribute actively to organizational goals.