Question

The Principal-Agent Problem arises A) because managers have little incentive to work in the interest of shareholders when this means working against their own self-interest. B) because of the separation of ownership and control in a corporation. C) Both A and B D) None of the above

Answer 1

Answer:

The correct answer is letter "C": Both A and B.

Explanation:

The principal-agent problem arises when the principal -stockholder- employs an agent -a manager who handles the business- to perform activities that conflict with the best interest of the agent. The problem typically occurs when the principal offers rewards for the agent to act in the interests of the principal but the agent has a different point of view to deal with the company.