Question

Which of the following assertions is true?

A) Agency costs do not involve costs that are incurred from managers pursuing their own interests at the expense of shareholder value and do not involve costs that are incurred by shareholders to make sure that managers pursue shareholder value.
B) Agency costs do not involve costs that are incurred from managers pursuing their own interests at the expense of shareholder value, but do involve costs that are incurred by shareholders to make sure that managers pursue shareholder value.
C) Agency costs involve costs that are incurred from managers pursuing their own interests at the expense of shareholder value, but not costs that are incurred by shareholders to make sure that managers pursue shareholder value.
D) Agency costs involve costs that are incurred from managers pursuing their own interests at the expense of shareholder value and costs that are incurred by shareholders to make sure that managers pursue shareholder value.

Answer 1

D) Agency costs involve costs that are incurred from managers pursuing their own interests at the expense of shareholder value and costs that are incurred by shareholders to make sure that managers pursue shareholder value.

Step-by-step explanation:

Due to the fact that most public companies are not managed by owners but by managers, agency cost arises.

Agency cost arises when the manager pursues her own interest to the detriment of the owners.

In order to mitigate against agency costs , owners put certain mechanisms in place to limit these costs. Some of these mechanisms include increased monitoring and employment contracts

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