Question

In the principle agent framework, the ultimate principals are

A. managers and a board of directors only

B. governments only

C. shareholders only

D. managers, a board of directors, and shareholders

Answer 1

When one person (the principal) relies on another person ( the agent) to act on behalf of the principal, this arrangement is called the principal-agent relationship.

In the principal-agent framework, the ultimate principals are Managers, a board of directors, and the shareholders.

The ultimate objective of the principal-agent relationship is the maximization of the wealth and achievement of the desired goals. The managers , a board of directors and shareholders can work as the co operative team to control and monitor the activities of the agents.

In such a situation, the shareholders can provide the financial capital and the board of directors and the managers can provide the human capital.

Hence, here, the ultimate principals in the principal agent framework are all three, the managers, board of directors and the shareholders