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.

Question

Quizplus · Accepted Answer

A corporate expenditure that benefits stockholders but harms management is not an agency cost, but rather a conflict of interest between stockholders and management. Agency costs refer specifically to costs incurred to monitor and reduce conflicts between principals (such as stockholders) and agents (such as management).

Of the Following, Which Statement Regarding Agency Costs Is False