Following a management buyout (MBO) of a subsidiary from a large public limited company (plc), the new owner-managers shift the firm's primary objective from growth maximisation to profit maximisation.
Which of the following best explains why this shift in objectives is likely to occur?
The alignment of ownership and control eliminates the principal-agent problem, directly incentivising the new owner-managers to target profit maximisation.
Operating as an independent private firm automatically eliminates corporate overheads, guaranteeing higher profit margins.
The removal of stock market pressure allows the firm to focus on long-term capital growth rather than immediate profitability.
The newly established private structure grants the business greater access to low-cost public equity to fund expansion.
16 exam-style questions on OCR A Level Economics Business objectives. Each one has a worked solution and a mark scheme showing where the marks go.