What is the initial public offering step where hired agents act on behalf of owners classified as______________?
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Answer: B. Agency problems
Explanation
Agency problems occur when hired managers act as agents for owners whose interests may diverge. Management might prioritize personal compensation and job security over maximizing shareholder stock value. Corporate governance mechanisms are established to align agent actions with principal wealth maximization. Principals are the shareholders who own the corporation and supply risk capital for operations. Agents are the executive managers hired to run daily business activities on behalf of owners. Information asymmetry often allows managers to pursue strategies that do not benefit public shareholders.
Stock option grants and performance bonuses help mitigate agency problems by aligning manager incentives. Activist shareholders often pressure corporate boards to reform executive compensation packages. Corporate scandals frequently stem from severe agency conflicts between management and investors. Hiring problems is too broad and does not capture the specific financial governance conflict. Corporation internal problems is a vague description lacking academic and professional precision. Corporation external problems refers to market competition or regulatory issues rather than management conflicts.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
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