In corporations, a principal-agent problem can arise when
A)the shareholders are the principal and the managers are the agent.
B)the board of directors is the principal and the managers are the agent.
C)the shareholders are the principal and the board of directors is the agent.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

All of the above choices are correct. The principal-agent problem can arise between different levels and groups of individuals within a corporation, including shareholders and managers, the board of directors and managers, and shareholders and the board of directors. The principal-agent problem occurs when the interests of the principal (such as shareholders or the board of directors) may not align with the interests of the agent (such as managers), leading to conflicts and potentially negative outcomes for the corporation.

In Corporations, a Principal-Agent Problem Can Arise When