A conflict of interest between the stockholders and managers of a firm is referred to as the:
A)stockholders' liability.
B)corporate breakdown.
C)agency problem.
D)corporate activism.
E)legal liability.

Question

Quizplus · Accepted Answer

The conflict of interest between stockholders and managers of a firm is known as the agency problem. This happens because managers may prioritize their personal goals rather than maximizing shareholder wealth, leading to a conflict of interest. This problem arises due to the separation of ownership and control in the modern large corporation. The agency problem can be reduced by aligning the incentives of managers with those of the stockholders.

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