Which of the following statements is correct?
A) Given the multi-owner nature of most large corporations, the agency costs associated with perquisite consumption are not really a problem.
B) Managers may operate in the stockholders' best interests, but they may also operate in their own personal best interests. As long as managers stay within the law, there simply are not any effective controls that stockholders can implement to control managerial decision making.
C) The potential for agency problems is greatest when individual stockholders own extremely small proportions of the companies and managers have little, if any, of their own wealth tied up in these companies.
D) An agency relationship exists when one or more persons hire another person to perform some service but withhold decision-making authority from that person.
E) Managers rule out any potential conflicts of interest with the shareholders by selling the firm's stock to outsiders.

Question

Quizplus · Accepted Answer

The statement correctly identifies that agency problems are most likely to occur when individual stockholders own small proportions of the company and the managers have little personal wealth tied up in the company. This creates a situation where the managers may prioritize their own interests over those of the shareholders. The other statements are incorrect or incomplete.

Which of the Following Statements Is Correct