A manager under-investing in projects that are in shareholder's best interests but which may reduce the manager's own bonus payment, is classed as which type of agency cost?
A) Monitoring cost
B) Loss from incongruent goals
C) Loss from a poor decision
D) Contracting cost

Question

Quizplus · Accepted Answer

This scenario is an example of a loss from incongruent goals, where the manager's personal interests (maximizing their own bonus) conflict with the shareholders' interests (investing in beneficial projects), leading to decisions that are not in the best interest of the shareholders.

A Manager Under-Investing in Projects That Are in Shareholder's Best