Question

Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because

a.Monitoring of managers located in foreign countries is more difficult.
b.Foreign subsidiary managers raised in different cultures may not follow uniform goals.
c.MNCs are relatively large.
d.All of the above
e.A and B only

Answer 1

Agency costs for MNCs are higher due to difficulties in managing and monitoring foreign subsidiary managers and disparities in cultural norms, resulting in option 'e. A and B only' being correct.

Step-by-step explanation:

Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms for several reasons. First, monitoring of managers located in foreign countries is more difficult due to distance, legal, and cultural differences. Additionally, foreign subsidiary managers raised in different cultures may not follow uniform goals due to divergent cultural norms and business practices. While the size of MNCs is a factor in the complexity of their operations, it is particularly the issues of monitoring difficulties and cultural differences that enhance agency costs. Therefore, the correct answer to why MNCs might face larger agency costs than domestic firms is both 'a' and 'b', or 'e. A and B only'.