Answers to End Of Chapter 1 Questions Explain the agency problem of MNCs.
Agency costs occur in an effort to assure that managers act in the best interest of the owners.
The agency costs are normally larger for MNCs than purely domestic firms for the following reasons. First, MNCs incur larger agency costs in monitoring managers of distant foreign subsidiaries. Second, foreign subsidiary managers raised in different cultures may not follow uniform goals. Third, the sheer size of the larger MNCs would also create large agency problems. Explain how the theory of comparative advantage relates to the need for international business.