A situation in which a firm's managers fail to act in the best interest of the shareholders is known as
A)management ineffectiveness.
B)the agency problem.
C)managerial goal incongruity.
D)None of the above.

Question

Quizplus · Accepted Answer

The agency problem arises when the interests of the shareholders (who are the owners of the firm) and the managers (who are hired to run the firm) do not align. This can result in the managers making decisions that benefit themselves instead of maximizing shareholder value. Therefore, the agency problem describes a situation in which a firm's managers fail to act in the best interest of the shareholders. Choices A and C do not accurately describe this situation.

A Situation in Which a Firm's Managers Fail to Act