One reason that the principal-agent problem is a general one in equity contracts is that
A)most uses of corporate funds are highly visible.
B)many uses of corporate funds are hidden from view.
C)since top management usually also owns the bulk of the firm's stock, it has little incentive to respond to the wishes of the remaining shareholders.
D)the Securities and Exchange Commission does a poor job of detecting fraud by top management.

Question

Quizplus · Accepted Answer

The principal-agent problem arises in equity contracts because many uses of corporate funds are hidden from view, making it difficult for the principal (shareholders) to monitor and control the actions of the agent (management). This information asymmetry can create conflicts of interest between the two parties and lead to agency costs. The other options are not the best choice as they either do not accurately describe the issue or are not relevant to the question.

One Reason That the Principal-Agent Problem Is a General One