Which form of business structure faces the greatest agency problems?
The answer is D) Corporation . The more removed the owner is from the manager, the higher the agency problems .
In which form of business Organisation is an agency problem most likely to occur?
Answer and Explanation: The correct answer is: a) in sole proprietorships. The agency problem is where one party is expected to act in another party’s best interests.
Which one of the following actions by a financial manager is most apt to create an agency problem?
Which one of the following actions by a financial manager is most apt to create an agency problem ? Increasing current profits when doing so lowers the value of the firm’s equity.
What are the types of agency problems?
The three types of agency problems are stockholders v/s management, stockholders v/s bondholders/ creditors, and stockholders v/s other stakeholders like employees, customers, community groups, etc.
Which business form is best suited to raising large amounts of capital?
Ability To Raise Capital : Corporations give you the biggest opportunities for raising large amounts of capital through the sale of stock. Limited Personal Liability: Corporations offer the most protection against personal liability for shareholders.
What is agency cost analysis?
An agency cost is a type of internal company expense , which comes from the actions of an agent acting on behalf of a principal. Agency costs typically arise in the wake of core inefficiencies, dissatisfactions, and disruptions, such as conflicts of interest between shareholders and management.
How can we solve agency problem?
Perhaps the simplest method for eliminating the agency problem is to remove financial incentives that encourage conflicts of interest. Returning to the financial advisor example, the agency problem exists in that scenario because the advisor’s compensation is tied to the specific financial products he offers you.
What causes agency problem?
Agency problem arises when incentives or motivations present themselves to an agent to not act in the full best interest of a principal. Through regulations or by incentivizing an agent to act in accordance with the principal’s best interests, agency problems can be reduced.
What is agency relationship?
An agency relationship is a fiduciary relationship , where one person (called the “principal”) allows an agent to act on his or her behalf. The agent is subject to the principal’s control and must consent to her instructions.[
What is the primary goal of financial management for a sole proprietorship?
The goal of sole proprietorship financial management for tax purposes is to document and organize information about company transactions to facilitate the process of filling out tax forms.
Why should financial managers strive to maximize the current share price?
Why should financial managers strive to maximize the current value per share of the existing stock ? Doing so guarantees the company will grow in size at the maximum possible rate. Because this will increase the current dividends per share . Because managers often receive shares of stock as part of their compensation.
Which of the following is a duty of a financial manager in a business firm?
Financial managers are responsible for the financial health of an organization. They produce financial reports, direct investment activities, and develop strategies and plans for the long-term financial goals of their organization.
Which of the following is the best example of an agency problem?
The best example of an agency problem is: Lenders disagreeing with hotel owners about dividend payments.
What is the principal agent problem that may exist in a corporation?
What Is the Principal – Agent Problem ? The principal – agent problem is a conflict in priorities between a person or group and the representative authorized to act on their behalf. An agent may act in a way that is contrary to the best interests of the principal .
What are the types of agency cost?
There are three common types of agency costs : monitoring, bonding, and residual loss.