Understanding Agency Theory

Understanding Agency Theory

Assessment

Interactive Video

Business

10th - 12th Grade

Practice Problem

Hard

Created by

Jennifer Brown

FREE Resource

10 questions

Show all answers

1.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is a key reason for conflicts in agency relationships?

Both parties act in their own self-interest.

There is no information asymmetry.

Principals have more information than agents.

Agents always act in the principal's best interest.

2.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

In the context of agency theory, what is a common conflict between shareholders and management teams?

Shareholders prefer high risk, while management prefers low risk.

Shareholders and management teams always have aligned interests.

Management teams are risk-averse, unlike shareholders.

Management teams may take high risks for short-term gains, while shareholders focus on long-term growth.

3.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What was a major factor in the Enron scandal as an example of agency problems?

Excessive transparency in financial reporting.

Overvaluation of company assets by shareholders.

Misrepresentation of financial losses by management.

Lack of investment in high-risk markets.

4.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

How did Bernie Madoff's Ponzi scheme exemplify agency problems?

It highlighted the importance of aligning incentives and oversight.

It showed the benefits of traditional banking institutions.

It proved that Ponzi schemes are always successful.

It demonstrated the effectiveness of fund management outside banks.

5.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which strategy involves creating a detailed agreement to align interests in agency relationships?

Transparency

Bonuses

Contracts

Evaluations

6.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is the purpose of imposing restrictions in agency relationships?

To significantly reduce agency loss.

To eliminate the need for contracts.

To reduce the principal's confidence.

To increase the agent's power.

7.

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

How can evaluations help in reducing agency problems?

By providing no feedback on agent performance.

By assessing agents based on their decisions and rewarding compliance.

By ignoring agent performance entirely.

By rewarding agents for self-interested actions.

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