As it relates to corporations, the principal-agent problem is that
A) the goals of the corporate managers (the principals) may not match the goals of the corporate owners (the agents).
B) the goals of the corporate managers (the agents) may not match the goals of the corporate owners (the principals).
C) the federal government (the agent) taxes both corporate proﬁts and the dividends paid to stockholders (the principals).
D) it is costly for the corporate owners (the principals) to obtain a corporate charter from government (the agent).

Question

Quizplus · Accepted Answer

The principal-agent problem is the conflict of interest between the corporate owners (principals) and corporate managers (agents). The owners may have different goals than the management team, leading to potential conflicts and reduced performance. Choice A is incorrect because it assumes that the corporate managers are the principals, which is not the case. Choices C and D are also incorrect as they do not relate to the principal-agent problem.

As It Relates to Corporations, the Principal-Agent Problem Is That