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Both Talmot and Delmont are large public companies with subsidiaries throughout the world. Delmont uses a...

Both Talmot and Delmont are large public companies with subsidiaries throughout the world. Delmont uses a decentralized approach and its subsidiaries make most of their own decisions. Talmot uses a centralized approach and makes most of the decisions for its subsidiaries. Which of the following is correct?

Agency costs would be the same for both companies
Agency problems would be the same for both companies
Agency problems would probably be more pronounced for Delmont because it is more likely that subsidiary decisions would conflict with the parent
Agency problems would probably be more pronounced for Talmot because it is more likely that subsidiary decisions would conflict with the parent
None of the above
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Answer #1

Bottom line is that the agency problem would be much more pronounced for Delmont. The reason being is that a decentralized approach allows subsidiaries the ability to make some or all of their own decisions. At times the subsidiaries have the luxury of information that is readily available within their division and this allows for the subsidiary to make fast decisions. The agency issues come into place when those subsidiaries conflict with the parent organization

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