Which one of the following is a source of conflict between owners and managers?
A) Manager's effort leaves firm's value and manager's utility unchanged.
B) Manager's effort decreases firm's value and manager's utility.
C) Manager's effort increases firm's value but decreases manager's utility.
D) Manager's effort increases firm's value and manager's utility.

Question

Quizplus · Accepted Answer

Managers may avoid putting in extra effort if it increases the firm's value but decreases their own utility, leading to a conflict of interest with owners who want to maximize firm value.

Which One of the Following Is a Source of Conflict