Agency costs are the tangible and intangible expenses borne by shareholders because of the actual or potential self-serving actions of managers; and agency costs can include explicit, out-of-pocket expenses.

Question

Quizplus · Accepted Answer

This statement accurately describes agency costs, which are a well-established concept in finance and economics. Managers may have incentives to act in their own interest rather than the interest of shareholders, and this can lead to agency costs. These costs can be both tangible (such as salaries or bonuses) and intangible (such as the loss of reputation that comes with unethical behavior). Overall, agency costs represent a significant concern for shareholders and are an important area of research in corporate finance.

Agency Costs Are the Tangible and Intangible Expenses Borne by Shareholders