Which of the following is a characteristic of principal-agent conflicts that often exist in a firm? Managers do not always operate in the best interest of owners because owners are generally more risk averse than managers. Managers do not always operate in the best interest of owners because managers care about the noncash benefits of their jobs. Firms can usually find solutions that reduce agency costs without increasing monitoring or incentive costs.

Question

Business

Devin Grant

11 April, 00:23

Which of the following is a characteristic of principal-agent conflicts that often exist in a firm? Managers do not always operate in the best interest of owners because owners are generally more risk averse than managers. Managers do not always operate in the best interest of owners because managers care about the noncash benefits of their jobs. Firms can usually find solutions that reduce agency costs without increasing monitoring or incentive costs.

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Answers (1)

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Riya Walton · Answer 1

Managers generally have a shorter time horizon than owners; thus, managers do not fully take into account the future long-run profitability of the firm.

Explanation:

The option that is missing is actually the correct answer. Many times managers are more worried about short term results since they earn money based on them, while owners are concerned with ling term profitability and wealth creation.

A principal-agent conflict occurs when the agent and the principal have different priorities or interests, and the agent does not fulfill their duties properly. The agent is supposed to act on behalf of the principal's best interests, but sometimes they act on behalf of their own interests.