In addition to an annual base salary of 1.3 million USD and 10.4 million USD in stock compensation and bonuses,Heather Bresch,CEO of Mylan Pharmaceuticals,also received 6.4 million USD in other compensation in 2015.This included 19,200 USD for the use of a company-provided automobile and 310,000 USD in personal use of the company jet.Which of the following statements is true regarding this situation?
A) Shareholders favor diversification.
B) Executives favor diversification.
C) Top level managers always act in the shareholder interest.
D) Top level managers may pursue their own interests over that of the company.

Question

Quizplus · Accepted Answer

Agency theory is concerned with resolving two problems that can occur in agency relationships. The first is the agency problem that arises (1) when the goals of the principals and agents conflict and (2) when it is difficult or expensive for the principal to verify what the agent is actually doing. The second issue is the problem of risk sharing. This arises when the principal and the agent have different attitudes and preferences toward risk. At times, top-level managers engage in actions that reflect their self-interest rather than the interests of shareholders.

In Addition to an Annual Base Salary of 1