Of the Following, Which Statement Regarding Agency Costs Is False

question 211

Multiple Choice

Of the following, which statement regarding agency costs is false?

• A) An agency problem exists when there is a conflict of interest between the stockholders and management of a firm.
• B) An agency problem exists when there is a conflict of interest between a principal and an agent.
• C) An indirect agency cost occurs when firm management avoids risky projects that would favourably affect the stock price because the managers are worried about keeping their jobs.
• D) A corporate expenditure that benefits stockholders but harms management is an agency cost.
• E) If agency costs get too high in the eyes of shareholders, they can begin a proxy fight to replace existing management.

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Definitions:

RBV Perspective

The Resource-Based View (RBV) is a model that sees resources as key to superior firm performance. It focuses on the importance of a firm's internal capabilities in achieving competitive advantage.

Firm's Profitability

A measure of how effectively a company generates profit from its revenues or investment.

Within Industries

Pertains to activities, competitions, and regulatory considerations occurring inside a specific sector or type of business.

Market Firms

Organizations that operate in a specific market, engaging in the production, distribution, or trading of goods or services.