Question

For an MNC, agency costs are typically?

1) nonexistent
2) larger than agency costs of a small purely domestic firm
3) smaller than agency costs of a small purely domestic firm
4) the same as agency costs of a small purely domestic firm

Answer 1

For an MNC, agency costs are typically larger than agency costs of a small purely domestic firm.

Step-by-step explanation:

For an MNC, the typical agency costs are larger than the agency costs of a small purely domestic firm.

Agency costs refer to the costs associated with potential conflicts of interest between the management (agents) and the shareholders (owners) of a company. In the case of MNCs, the complexity of their operations, the need for coordination across different countries, and the separation of ownership and control contribute to higher agency costs.

For example, an MNC may have subsidiaries in different countries, each with its own management team. This can lead to challenges in aligning the interests of these managers with those of the shareholders. Additionally, MNCs may face challenges in monitoring the actions of managers in different locations, which can increase agency costs.