Question

Which one of the following can best be characterized as an agency problem? offering opinions among...

Which one of the following can best be characterized as an agency problem? offering opinions among directors as to the merits of paying a higher dividend, differing incentives between managers and owners, persistently late delivery times by a major supplier, or geological problems in the company's new gold mine

Homework Answers

Answer #1

b.Differing incentives between managers and owners.

Agency problem occurs between principal and agent.

In case of company form of organisation shareholders (owners) are the principal and directors (managers) are the agents.

The managers are expected to act in the best interest of owners.

So, differing incentives betwen managers and owners is an ageny problem.

Opinion to pay higher dividend does not rise a conflict between owners and managers.

Persistent late delivery times by major supplier or geological problems does not represent an agency problem.

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