Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because

Question

Quizplus · Accepted Answer

All three options listed in the answer choices contribute to why multinational corporations may face larger agency costs compared to purely domestic firms. Monitoring managers located in foreign countries can be more challenging due to different time zones, languages, and cultural barriers, making it difficult for corporate headquarters to ensure that subsidiaries are following the same goals and objectives. Moreover, foreign subsidiary managers raised in different cultures may have different priorities and ways of doing business, resulting in potential conflicts with corporate headquarters. Lastly, MNCs may be relatively larger than purely domestic firms, meaning that there are more layers of management and potentially more opportunities for agency problems to arise.

Agency Costs Faced by Multinational Corporations (MNCs) May Be Larger