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:

Trading Securities

Financial instruments such as shares, bonds, or other securities that are purchased with the intention of selling them in the short term to profit from price fluctuations.

Debt Securities

Financial instruments representing money borrowed that must be repaid, such as bonds, bills, or notes.

Available-for-Sale Securities

Financial assets that a company intends to sell within a short period but can hold onto for an indefinite period, classified as neither held for trading nor held to maturity.

Realizable Securities

Financial assets that can be quickly converted into cash with a known market price.