To avoid the agency problem, managers should take actions:
A) Which adds value to the ﬁrm.
B) Only after the president has approved them.
C) Only if they increase the market share of the ﬁrm.
D) Which add to the size of the ﬁrm's workforce.
E) Only if management jobs will not be jeopardized.

Question

Quizplus · Accepted Answer

The agency problem arises due to the conflict of interest between the managers and shareholders of the company. Managers may act in their own best interest rather than in the interest of the shareholders. Therefore, to avoid the agency problem, managers should take actions that add value to the firm and are in the best interest of the shareholders. The other options such as obtaining approval from the president, increasing market share, adding to the size of the firm's workforce, or not jeopardizing management jobs do not necessarily align with creating value for the firm and its shareholders.

To Avoid the Agency Problem, Managers Should Take Actions