In the principal-agent framework:
A) Shareholders are the principals
B) Managers are the principals
C) Managers are the agents
D) A and D

Question

Quizplus · Accepted Answer

In the principal-agent framework, shareholders are the principals who hire managers as their agents to make decisions and manage the company on their behalf. Therefore, A is correct. Managers are the agents who are expected to act in the best interest of the principals (shareholders) but may have their own interests as well. Thus, C is also correct.

In the Principal-Agent Framework