Agency costs do not include:
A) costs of auditing financial statements
B) liability insurance for board of directors
C) management perks
D) fees paid to advertising agencies

Question

Quizplus · Accepted Answer

Agency costs refer to the costs incurred by the principals (shareholders) to monitor and control the actions of the agents (management) to align their interests with the interests of the principals. Fees paid to advertising agencies are not related to management and do not impact principal-agent relationships. Therefore, option D is not an agency cost. Options A, B, and C are all agency costs as auditing financial statements, liability insurance for board of directors, and management perks are all costs incurred by the principal to monitor and control the agent's actions.

Agency Costs Do Not Include