Final answer:
Agency conflicts in corporations involve shareholder-manager and shareholder-debtholder conflicts, wherein shareholder primacy conflicts with stakeholder theory. Safety and liability standards like those set by OSHA reflect stakeholder interests. Deciding between borrowing and issuing stock for capital depends on factors like control and cost.
Step-by-step explanation:
The question pertains to agency conflicts in modern corporations, specifically between shareholders and managers, and shareholders and debtholders. Shareholders, being the owners of a portion of the corporation, expect the managers they appoint to act in their best interests. However, managers may have their own set of interests that can conflict with the shareholders' expectations. Speaking of shareholder primacy, this concept emphasizes that the primary duty of managers is to work towards increasing shareholder wealth. In contrast, stakeholder theory suggests that managers have a duty to balance the interests of all parties involved with the firm, including employees, customers, and the community, not just shareholders.
Safety and liability are also critical aspects in business, with legal protections evolving over time, highlighting stakeholder interests. In the United States, the Occupational Safety and Health Administration (OSHA) sets standards for workplace safety, which are relatively recent developments compared to the historical laissez-faire approach advocated by classical economists like Adam Smith.
To answer the critical thinking question, if a small firm needs a surge of financial capital for a major expansion, the choice between borrowing and issuing stock depends on various factors such as control of the company, cost of financing, and the firm's financial conditions. Borrowing maintains ownership control but can be costly in terms of interest payments, while issuing stock can dilute ownership but lead to a healthier balance sheet.