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ACCA Applied Knowledge · Business and Technology · Governance in business organisations

Shareholders of Corvane plc are concerned that managers, who have more information about the company's operations than the shareholders, may hide poor results. Which feature of the agency relationship does this concern most directly describe?

The concern describes information asymmetry. Managers as agents hold more information about the business than the shareholders, so principals struggle to monitor behaviour or detect poor results being concealed, which feeds the agency problem.

  1. AInformation asymmetry between agents and principalsCorrect
  2. BExcessive shareholder power over management
  3. CLack of any contractual relationship between the parties
  4. DA conflict between internal and external customers

Explanation

Managers know more about the business than shareholders do, and this gap lets them act in their own interest or withhold bad news. This is information asymmetry, which makes monitoring agents difficult and costly. The concern is not about shareholders having too much power.

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