The agency relationship in corporate finance occurs
A)when the shareholders hire a manager to run their company.
B)when the corporate hires an advertising agency to market their new product or service.
C)when the board of directors are elected to staggered terms.
D)when the board of directors oversee the CEO.

Question

Quizplus · Accepted Answer

The agency relationship in corporate finance refers to the relationship between the shareholders (principals) and the managers (agents) that they hire to run their company. The managers are expected to act in the best interests of the shareholders, but their own interests may not always align. This creates a potential conflict of interest, which is known as the agency problem. The relationship between the shareholders and the managers is governed by the agency theory.

The Agency Relationship in Corporate Finance Occurs