The managers at Speed Automobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Speed Automobile is most likely a result of

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In this scenario, this acquisition by Speed Automobile is most likely a result of principal-agent problems. Managers, as agents, are supposed to act in the best interest of the principals, the shareholders. However, managers may have incentives to grow their firms through acquisitions-not for anticipated shareholder value appreciation, but to build a larger empire, which is positively correlated with prestige, power, and pay.

The Managers at Speed Automobile Inc