The principal-agent problem may result if
A) a firm is owned and operated by the same person.
B) managers make decisions that are not in the best interest of owners.
C) a firm compensates managers based on the profitability of the firm.
D) All of these answers are correct.

Question

Quizplus · Accepted Answer

The principal-agent problem occurs when there is a conflict of interest between the principal (owners) and the agents (managers), particularly when managers make decisions that are not in the best interest of the owners. Choices A and C describe scenarios that either mitigate the principal-agent problem or are unrelated to it.

The Principal-Agent Problem May Result If