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

An analyst notes that a public corporation has widely dispersed shareholders and professional managers who own few shares. This situation is most likely to give rise to:

Dispersed owners and non-owning professional managers most likely create a principal–agent conflict. Managers, as agents, may act in their own interest rather than shareholders'. Listed firms usually have good price discovery and capital access, so the other options describe problems more typical of private firms.

  1. Aa principal–agent conflict between shareholders and managementCorrect
  2. Ba lack of price discovery for the company's equity
  3. Can inability to raise additional capital through share issuance

Explanation

Separation of ownership and control means managers (agents) may pursue their own interests rather than those of shareholders (principals). Public listing generally improves price discovery and capital access.

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