Managers (________)may act in their own interest rather than in the interest of the stockholder-owners (________)because the managers have less incentive to maximize profits than the stockholder-owners do.
A)principals;agents
B)principals;principals
C)agents;agents
D)agents;principals

Question

Quizplus · Accepted Answer

This is a classic example of the principal-agent problem, where the stockholder-owners (principals) hire managers (agents) to run the company. However, due to differing incentives, the managers may not always act in the best interest of the stockholder-owners. The managers may prioritize their own interests or other stakeholders' interests over maximizing profits for the stockholder-owners. Therefore, the correct answer is D, agents; principals.

Managers (________)May Act in Their Own Interest Rather Than in the Interest