Examples of agency costs include: 1) financial monitoring costs such as audits,
ID: 2382370 • Letter: E
Question
Examples of agency costs include: 1) financial monitoring costs such as audits, 2.) performance bonds placed on managers, and 3.) employee stock option plans. True of false Examples of agency costs include: 1) financial monitoring costs such as audits, 2.) performance bonds placed on managers, and 3.) employee stock option plans. True of false Examples of agency costs include: 1) financial monitoring costs such as audits, 2.) performance bonds placed on managers, and 3.) employee stock option plans. True of falseExplanation / Answer
Answer:
Agency costs arise because of conflicts between shareholders and managers running the company. On the one side shareholders wants for management to run the company in a way that increases shareholder value. But management wants to run the company in a way so that they can maximize their salaries and powers.
Hence Agency costs can be of following types:
A) Costs incurred when the managers uses to company's funds for their own benefit
B) Cost of procedures that shareholders use to control and monitor the managers from using company's funds for their own benefit.
Hence we can say that agency costs include: 1) financial monitoring costs such as audits, 2.) performance bonds placed on managers, and 3.) employee stock option plans.
The Statement is true.
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