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CFA Level I · CFA Level I Exam · Organizational Forms, Corporate Issuer Features, and Ownership

A founder-owned private company completes an initial public offering and sells a minority stake to dispersed investors. The agency conflict that is most likely to increase as a result is between:

The manager-shareholder agency conflict most likely increases, because after the IPO ownership is spread among many dispersed investors who cannot closely monitor management. Separation of ownership and control lets managers pursue their own interests rather than maximizing shareholder value.

  1. Amanagers and shareholdersCorrect
  2. Bmajority shareholders and creditors
  3. Ccontrolling shareholders and employees only

Explanation

After the IPO, ownership is separated from control, with dispersed shareholders relying on managers who may pursue their own interests. This manager-shareholder conflict grows as owners become less involved in day-to-day management.

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