CIMA BA1 · Chapter 4 · Question 3 of 9
Which of the following is an example of the principal-agent problem?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Directors pursue rapid growth in sales to increase their own status and pay rather than maximising shareholder wealth
Explanation
Shareholders (principals) appoint directors (agents) to run the company. Where ownership and control are separated, agents may pursue their own objectives, such as growth, status or perks, at the expense of the principals. Corporate governance aims to reduce these agency costs.
More Goals of organisations and stakeholders MCQs
- Q5The concept of 'satisficing' suggests that managers:
- Q6Which of the following is a key role of independent non-executive directors in a listed company?
- Q7A firm that aims to maximise sales revenue (with no profit constraint) will choose the level of output at which:
- Q8A firm faces the demand curve P = 80 - 0.5Q, so its marginal revenue is MR = 80 - Q. Marginal cost is constant at $20 per unit. What…
- Q9Which of the following is a connected stakeholder of a company?