A conflict of interest between the stockholders and management of a firm is called:
A)stockholders' liability.
B)corporate activism.
C)legal liability.
D)corporate breakdown.
E)an agency problem.

Question

Quizplus · Accepted Answer

An agency problem refers to a situation where the interests of the shareholders and management of a firm are misaligned. This conflict of interest arises because managers may prioritize their own personal interests over those of the shareholders, leading to a loss in shareholder value. This problem is also known as the principal-agent problem, as the shareholders are the principals, while the management team are the agents tasked with executing their duties in the best interest of the shareholders.

A Conflict of Interest Between the Stockholders and Management of a Firm