Moral Hazard in Equity Contracts Is Known as the ________

question 95

Multiple Choice

Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer.

• A)principal-agent
• B)adverse selection
• C)free-rider
• D)debt deflation

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Definitions:

Tax Authority

The governmental organization responsible for enforcing tax laws and collecting taxes.

Cash Flow

This represents the total amount of money being transferred in and out of a business, especially in terms of operational, investment, and financing activities.

Employees

Employees refer to individuals hired by an organization or company to perform specific duties in exchange for compensation.

Business Owner

An individual who owns and operates a business entity, assuming all risks and rewards of the venture.