When managers do not own very much of the net worth of the firm, then
A)there may be a principal-agent problem.
B)the firm will usually have to raise most of its funds in financial markets.
C)the firm will have to rely more on equity financing than debt financing.
D)the firm will have to rely more on debt financing than equity financing.

Question

Quizplus · Accepted Answer

When managers do not own much of the net worth of the firm, they may not be motivated to act in the best interest of the shareholders (who own the majority of the firm's net worth). This results in a principal-agent problem, where the managers may prioritize their own interests over the interests of the shareholders.

When Managers Do Not Own Very Much of the Net