1. Principal-agent relationships:
a. reduce monitoring costs
b. occur because managers have good information about employees.
c. are not related to asymmetric information
d. are subject to moral hazard problems.
2. Principal-agent problems:
a. occur when firm managers have more incentive to maximize profit than shareholder do.
b. would be reduced if firm owners had better information about the actions of the firm's managers.
c. help explain why equity investments from outside owners are an important financing source for firms.
d. are increased as more information is shared between the parties
3. In order to create an effective incentive compensation scheme, you must have
a. adequate performance measures
b. unlimited funds
c. a flat management structure
d. None of the above