Question

is attempt took 135 minutes. rect Question 1 How can the agency problem between managers and owners be mitigated in a MNC? 1. Instituting Board of directors 11. Using incentive contracts III. Having debt in the firm IV. The Market for Corporate Control V. Having Diffused ownership VI. Maximizing Profit and Minimizing Costs II, III, IVM CertificateOfC....pdf ^ THANTU INU....

Answer 1

Agency problem refers to the conflict of interest between a company’s principles and agents in an organization.

The shareholders who are the owners of the firm are the principals and the managers are the agent. Shareholders want the managers to manage the company in a way that increases the shareholders’ value. While, the managers may wish to run the company in a way that increases their wealth and prestige even if it results in a decline in the market value of the of the company. And there lies the conflict between managers and shareholders.

In the best interest of shareholders, compensation packages should be structured in a way such that managers have an incentive to maximize the long-run value of the company's stock price.

Hence, the answer is option II.

In case of any query, kindly comment on the solution.