All else equal, in which of the following forms of business would the possibility of an agency problem be the greatest?
A)A U.S. corporation in which individual stockholders own extremely small proportions of the company.
B)A proprietorship in which the owner is actively managing the business operations.
C)A partnership in which all the partners share management and decision-making responsibilities equally.
D)A foreign corporation with concentrated ownership; that is, it has relatively few owners.
E)A U.S. corporation that gives company shares as incentives to its managers.

Question

Quizplus · Accepted Answer

Agency problems are most likely to occur in a U.S. corporation where individual stockholders own extremely small proportions of the company. This is because the separation between ownership and control is greatest in this scenario, leading to potential conflicts of interest between managers (agents) and shareholders (principals).

All Else Equal, in Which of the Following Forms of Business