The "agency problem" arises when:

Question

Quizplus · Accepted Answer

The agency problem occurs when managers, who are hired by shareholders to run the company, act in their own interest instead of in the best interest of the shareholders. This conflict of interest arises due to the separation of ownership and control in a company where shareholders are the owners but do not directly manage the company. Option A is incorrect because it implies that the owners themselves are managing the company, eliminating the agency problem. Option B is a description of the agency problem, not the cause. Option D is incorrect because shareholders are the ones who have entrusted the board to act in their best interests.

The "Agency Problem" Arises When