Question

N the principal-agent framework, the ultimate principals are

I) managers;
II) board of directors;
III) shareholders;
IV) governments

a. I and II only
b. IV only.
c. III only
d. I, II, and III only

Answer 1

The ultimate principals in the principal-agent framework are the managers, the board of directors, and the shareholders.

Step-by-step explanation:

The correct answer is d) I, II, and III only.

In the principal-agent framework, the ultimate principals are the managers, the board of directors, and the shareholders. These entities play a crucial role in ensuring that the firm operates in the best interests of the true owners, who are the shareholders.

The managers, as the top executives who run the firm, have a strong influence in choosing the candidates who will serve on the board of directors. The board of directors, elected by the shareholders, is responsible for providing governance and oversight. And the shareholders, as the owners of the company, have an interest in the firm's performance and a say in important decisions.