Both Adams and Wolfe are large public corporations with subsidiaries throughout

Question

Both Adams and Wolfe are large public corporations with subsidiaries throughout the world.   Adams uses a centralized approach and makes most of the decisions for its subsidiaries. Wolfe uses a decentralized approach and its subsidiaries make most of their own decisions.   Which of the following is correct?

A. the agency problem would probably be more pronounced for Wolfe because of a higher probability that subsidiary decisions would conflict with the parent

B. agency costs would be the same for both companies

C. a decentralized approach is almost always better

D. a centralized approach is almost always better

E. none of the above

A. the agency problem would probably be more pronounced for Wolfe because of a higher probability that subsidiary decisions would conflict with the parent

B. agency costs would be the same for both companies

Explanation / Answer

Correct option is (C) a decentralized approach is almost always better.

Under a decentralized approach the decision making authority doesnot approach the central group.

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