The tendency for managers to operate a firm in a way that maximizes their personal utility rather than the firm's profits is referred to as the
A) consumer utility incentive.
B) principal-agent problem.
C) hidden agenda scenario.
D) Modigliani hypothesis.

Question

Quizplus · Accepted Answer

The principal-agent problem occurs when the goals of principals (owners or shareholders) and agents (managers) diverge, leading managers to act in their own interests rather than in the interests of the shareholders, potentially at the expense of the firm's profitability.

The Tendency for Managers to Operate a Firm in a Way