Recent studies suggest that agency costs of managerial discretion are lower in Japan than in the United States.This suggests that

Question

Quizplus · Accepted Answer

If agency costs of managerial discretion are lower in Japan than in the United States, it means that Japanese firms have better corporate governance and are less likely to waste resources or engage in risky activities that may harm shareholder value. This implies that investors may require a lower return on their investment in Japanese firms compared to U.S. firms, which would lead to a lower cost of capital for Japanese firms. This advantage would remain even if international financial markets are fully integrated, as investors would still seek to invest in efficient firms with good governance and lower agency costs, regardless of their country of origin. Therefore, the correct option is B, the cost of capital can be lower in Japan than the United States, even if international financial markets are fully integrated.

Recent Studies Suggest That Agency Costs of Managerial Discretion Are