In which of the following types of firms is an agency problem most likely to exist?
A)a private corporation that has only one owner and only a few employees
B)a partnership with several owners, but only a few employees
C)a sole proprietorship that has only one owner and one employee
D)a publicly-held corporation that has many owners and many employees

Question

Quizplus · Accepted Answer

An agency problem arises when there is a separation of ownership and control, which is most likely to occur in a publicly-held corporation with many shareholders and many employees. In this case, the shareholders (owners) may not be able to monitor or control the actions of the managers (employees) effectively, leading to conflicts of interest and potentially harmful decisions. In a publicly-held corporation with many owners and many employees, there is a greater likelihood of an agency problem existing. This is because the separation of ownership and control is more pronounced in larger firms with dispersed ownership, making it easier for managers to act in their own self-interest rather than in the best interests of shareholders. This can lead to conflicts between managers and shareholders, and potentially reduce the value of the firm.

In Which of the Following Types of Firms Is an Agency