One cause of the diverging interests between principals and agents is that managers in the company are motivated by different desires such as power, job security, and income and may use their position to help fulfill those desires rather than invest in ways that increase stockholder returns.

Question

Quizplus · Accepted Answer

This statement is true. The principal-agent problem occurs when the goals of the principal (stockholders) and the agent (managers) diverge. Managers may prioritize their own desires, such as job security or power, over the interests of the stockholders who own the company. This can lead to decisions that benefit managers but do not maximize stockholder returns.

One Cause of the Diverging Interests Between Principals and Agents