Agency costs are an integral part of agency relationships.They are a key concern in the shareholder-management relationship in that:
A)agency costs result in a reduction in the value of the company,because management pursues its own interests.
B)agency costs result in a reduction in the value of the company,because of the administration costs in establishing agencies.
C)establishment of agency relationships requires extensive legal and contractual arrangements,which can be very costly.
D)shareholders view a company that operates as an agent to other companies as being more risky,and therefore they are willing to pay less for shares in the company.

Question

Quizplus · Accepted Answer

Agency costs refer to the costs incurred by shareholders in monitoring and controlling the actions of management to ensure that their interests are aligned with those of the shareholders. If agency costs are high, it means that management may be pursuing their own interests at the expense of the company's shareholders, which ultimately results in a reduction in the value of the company. Therefore, choice A is the best answer as it accurately reflects the impact of agency costs on the shareholder-management relationship.

Agency Costs Are an Integral Part of Agency Relationships