The agency problem is best deﬁned as a conﬂict of interest between a ﬁrm's:
A) Various employees.
B) Various managers.
C) Managers and the ﬁrm's employees.
D) Stockholders and the ﬁrm's managers.
E) Stockholders and the ﬁrm's debtors.

Question

Quizplus · Accepted Answer

The agency problem arises from a conflict of interest between a firm's shareholders (owners) and its managers (agents) who act on behalf of the owners. Managers may prioritize their own interests over those of shareholders, such as by pursuing their own personal goals or engaging in wasteful spending. This can lead to a decrease in shareholder wealth and a decline in firm performance.

The Agency Problem Is Best Deﬁned as a Conﬂict of Interest