XYl Ltd. is an owner-managed retail grocery store that went public on January 1, 2018. Afterward, Tom Jones, the fun-loving owner-manager, held 40 percent of the common stock and remained the chief executive of the company.

Required

a. Why is it likely that Tom Jones will shirk more after the firm goes public, relative to the time he was the owner-manager of the company prior to January 1, 2018? Will this affect the amount that Tom receives for his new share issue? Explain.

b. What steps can Tom Jones take to convince potential shareholders that he will not engage in excessive shirking?