Which of the following is not an example of an agency problem?
A)Firms are not as levered as shareholders would like them to be, due to fears of insolvency and possible bankruptcy.
B)Managers have discretion over whether or not to take on risky projects.
C)Managers can maintain control over a greater free cash flow by avoiding debt in their firm's capital structures.
D)Investors do not have perfect information about the value of their investments.

Question

Quizplus · Accepted Answer

Option D is not an example of an agency problem. It is a problem of information asymmetry, where investors do not have all the information they need to make an informed decision. Agency problems arise due to conflicts of interest between principals and agents, such as managers prioritizing their own interests over the interests of shareholders. Options A, B, and C all represent agency problems.

Which of the Following Is Not an Example of an Agency