Asked by Kayli Swigart on Jun 15, 2024
Verified
________ is a mechanism for mitigating potential agency problems.
A) Tying income of managers to success of the firm
B) Directors defending top management
C) Antitakeover strategies
D) All of the options.
Agency Problems
Conflicts of interest that arise between stakeholders (principals) and decision-makers (agents) within a corporation or agency, often due to differing objectives.
Antitakeover Strategies
Measures employed by a company to prevent or deter unwanted takeover bids, such as poison pills or golden parachutes.
- Understand the mechanisms to mitigate agency problems within corporations.
Verified Answer
HA
Heather AielloJun 17, 2024
Final Answer :
A
Explanation :
Tying income of managers to success of the firm is a mechanism for mitigating potential agency problems as it aligns the interests of managers with the success of the firm. If a manager's compensation is tied to the performance of the firm, the manager has an incentive to work towards maximizing the value of the firm for shareholders. This helps to minimize the risk of agency problems, where managers may prioritize their own interests over those of the firm's shareholders. None of the other options directly address agency problems in the same way.
Learning Objectives
- Understand the mechanisms to mitigate agency problems within corporations.