Question

what do we mean by the separation of ownership from control in large corporations?
a. shareholders control the corporation, but it is owned by managers.
b. shareholders own the corporation, but it is controlled by the government.
c. shareholders own the corporation, but it is controlled by managers.
d. shareholders control the corporation, but it is owned by the government and by taxpayers.
how is the separation of ownership from control related to the principal - agent problem?
a. the agents (managers) may pursue their own interests rather than the interests of the principals (shareholders).
b. the agents (firms) may pursue their own interests rather than the interests of the principals (consumers).
c. the agents (consumers) may pursue their own interests rather than the interests of the principals (firms).
d. the agents (shareholders) may pursue their own interests rather than the interests of the principals (managers).

Explanation:

• For the first question: In large corporations, shareholders own the company (by holding shares) but managers are in charge of day - to - day operations and control. Option A is incorrect as managers do not own the corporation. Option B is wrong because the government does not control the corporation in the context of normal corporate ownership - control separation. Option D is incorrect as the government and taxpayers do not own the corporation in this sense.
• For the second question: In the principal - agent problem, shareholders (principals) hire managers (agents). Agents (managers) may act in their own self - interest (e.g., taking excessive perks, making decisions that boost their short - term career but harm long - term shareholder value) instead of acting in the best interest of the principals (shareholders). Option B is incorrect as firms are not agents in the principal - agent relationship described here. Option C is wrong because consumers are not agents in this corporate governance principal - agent context. Option D has the roles of agents and principals reversed.

Answer:

First question: C. Shareholders own the corporation, but it is controlled by managers.
Second question: A. The agents (managers) may pursue their own interests rather than the interests of the principals (shareholders).