Question

The agency problem exists primarily in companies of which:__________.

a. ownership is widely dispersed
b. common stock is closely held
c. management has stock ownership
d. both a & c

Answer 1

Answer: a. ownership is widely dispersed

Step-by-step explanation:

When ownership of a company is widely dispersed, it means that there are few major holders of stock and no majority shareholder.

This can lead to more instances of the Agency problem ( managers acting for their own welfare instead of that of the shareholders) as there will be fewer people able to call the managers to book unilaterally. The managers will therefore feel more empowered to do as they please.