Question

Separation of ownership and control creates an agency problem when an agent pursues goals that conflict with the principals' goals. Principals establish and use governance mechanisms to control this problem.

A.True
B.False

Answer 1

The correct answer is True

The agency problem arises when managers for instance pursue goals such as growth that could result in the increase of their salaries but may not necessarily add to the value of the company in the long term. Corporate governance can curb this problem.