Agency Problem

question 24

Essay

Agency Problem. In 2005, former WorldCom Inc. Chief Executive Bernard J. Ebbers was found guilty on charges of conspiracy, securities fraud and making false filings with the Securities and Exchange Commission in connection with what authorities have described as the largest accounting fraud in U.S. history. He could spend the rest of his life in jail.
A. What is the firm's potential agency problem?
B. What are agency costs within this firm?

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Definitions:

Regressive Tax

A tax system wherein the tax rate decreases as the taxable amount increases, placing a higher burden on lower-income earners.

Sales Tax

A tax on the value of goods sold.

Wealth Tax

A tax on the wealth of an individual.

Sales Tax

A tax imposed by a government on sales of goods and services, typically calculated as a percentage of the purchase price.