Question

Agency costs faced by multinational corporations (MNCs) may be larger than those faced by purely domestic firms because

a. Monitoring of managers located in foreign countries is more difficult.
b. MNCs are relatively large.
c. Foreign subsidiary managers raised in different cultures may not follow uniform goals.
d. All of these choices are correct.

Answer 1

The agency costs faced by multinational corporations may be larger than those faced by purely domestic firms due to difficulties in monitoring foreign managers, the large size of MNCs, and the potential differences in goals among managers from different cultures.

Step-by-step explanation:

The correct answer is option d. All of these choices are correct.

Agency costs are the costs that arise due to the conflicts of interest between the shareholders (owners) and the manager (agents) of a firm. In the case of multinational corporations (MNCs), these agency costs may be larger than those faced by purely domestic firms because:

1. Monitoring of managers located in foreign countries is more difficult. In MNCs, managers are spread across different countries, which makes it challenging to effectively monitor their actions and performance.
2. MNCs are relatively large. Due to their size and complex organizational structure, MNCs may face higher agency costs as coordination and control become more difficult.
3. Foreign subsidiary managers raised in different cultures may not follow uniform goals. Different cultural backgrounds and norms could create conflicts and differences in objectives among managers of MNCs, leading to increased agency costs.

Therefore, all of these choices contribute to the higher agency costs faced by multinational corporations.