The Principal-Agent Problem Exists When

question 34

Multiple Choice

The principal-agent problem exists when

• A)owners of an asset and the managers of that asset are the same.
• B)owners of an asset and the managers of that asset are the not the same.
• C)owners have an interest in making a profit.
• D)managers are dedicated to making owners a profit.

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Definitions:

Sarbanes-Oxley Act

An act that criminalizes specific nonaudit services when provided by a registered accounting firm to an audit client; also increases the punishment for a number of white-collar offenses. Also known as the Public Company Accounting Reform and Investor Protection Act of 2002.

Investment Company Act

A U.S. federal law enacted in 1940 aimed at regulating investment companies to protect investors by enforcing transparency and reducing conflicts of interest.

Finance Companies

Businesses that provide loans to individuals or corporations, excluding banks and other traditional financial institutions.

Debentures

A type of debt instrument not secured by physical assets or collateral but based on the issuer's creditworthiness and reputation.