Agency problems in capital budgeting include reduced effort, perks, empire building, and entrenching investments.

Question

Quizplus · Accepted Answer

Agency problems in capital budgeting can lead to reduced effort from managers who may not feel incentivized to make the best decisions for the company. Additionally, they may be tempted to pursue perks and empire building, which can lead to investments that are not in the best interest of the company. They may also engage in entrenching investments that are designed to maintain their power within the company, rather than investments that would maximize shareholder value.

Agency Problems in Capital Budgeting Include Reduced Effort, Perks, Empire