Which of the following statements is true of agency problems?
A)Regardless of economic conditions, if a firm's stock price falls during the year, this indicates that the firm's managers must not be acting in the best interests of the shareholders.
B)One method of controlling agency problems is to engage in the taking of "poison pills."
C)One of the best means to control agency problems is to require the managers and other important decision-makers of the firm to also be owners of the firm.
D)Agency problems probably would not exist if the important decisions of a firm were made by persons who have no vested interests, such as ownership, in the firm.
E)Shareholders can solve agency problems by selling their stock to other investors.

Question

Quizplus · Accepted Answer

Requiring managers and decision-makers to be owners of the firm aligns their interests with those of the shareholders and provides an incentive for them to act in the best interests of the company. Poison pills are a defensive measure to prevent unwanted takeovers but do not address the underlying agency problems. The other statements are either untrue or oversimplified.

Which of the Following Statements Is True of Agency Problems