The principal-agent problem refers to:
A) the threat from foreign competition.
B) the need to manage inventory more effectively.
C) double-entry bookkeeping.
D) the potential costs of separation of ownership and control.
E) the time value of money.

Question

Quizplus · Accepted Answer

The principal-agent problem arises when one party (the principal) hires another party (the agent) to act on their behalf, but there is a conflict of interest between the two parties. This can lead to the agent acting in their own self-interest instead of the principal's, and can result in potential costs of separation of ownership and control.

The Principal-Agent Problem Refers To