The principal-agent problem of ownership vs. control of the corporation tends to get worse when:
A) stock in a corporation is held exclusively by a small number of people who control the company's day-to-day operations.
B) stock in the company is tightly held, but there are some "outsider" stockholders.
C) stock in the company is very diffusely held, with no individual or group having control over a large block of stock.
D) managers have profit-sharing schemes as part of their incentive package.
E) managers focus on maximizing the firm's profits, rather than the firm's market share.

Question

Quizplus · Accepted Answer

The principal-agent problem tends to worsen when stock is very diffusely held, as no single shareholder or small group has enough control to directly influence management's actions, leading to a potential misalignment of interests between owners (shareholders) and managers (agents).

The Principal-Agent Problem of Ownership Vs