Question
Which one of the following terms is defined as a conflict of interest between the corporate shareholders and the corporate managers?
articles of incorporation
corporate breakdown
agency problem
bylaws
legal liability
articles of incorporation
corporate breakdown
agency problem
bylaws
legal liability
Ask by Peterson Hall. in the United States
Mar 24,2025
Upstudy AI Solution
Tutor-Verified Answer
Answer
The term that describes the conflict of interest between corporate shareholders and managers is the agency problem.
Solution
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Identify the roles involved:
- Shareholders are the owners of the corporation, also referred to as the principals.
- Managers are the individuals hired to run the corporation, also known as the agents.
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Understand the conflict:
- The conflict arises when the interests of the managers do not align perfectly with the interests of the shareholders.
- This misalignment can lead the managers to undertake actions that benefit themselves at the expense of the shareholders.
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Match the term:
- The term that specifically describes this conflict of interest is the
.
- The term that specifically describes this conflict of interest is the
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Conclusion:
- The correct answer is:
.
- The correct answer is:
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Simplify this solution Extra Insights
The term you’re looking for is “agency problem,” which refers to the conflict of interest that often arises when the goals of corporate managers, who are charged with running the company, diverge from those of the shareholders, who want to maximize their investment returns. This dynamic can lead to managerial decisions that favor personal benefits over shareholder value.
Historically, the agency problem has played a significant role in shaping corporate governance structures. The phenomenon became particularly evident during the rise of large corporations in the 20th century, prompting reforms such as stricter regulations, board oversight, and more transparent financial reporting in order to align the interests of managers and shareholders better.
