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

Lower agency costs of managerial discretion in Japan mean that investors may have more confidence in Japanese companies and are willing to invest at a lower cost of capital. This can be true even if international financial markets are fully integrated as the lower agency costs may still be a factor in investors' decisions. Option A is incorrect as it suggests that the lower cost of capital is dependent on the integration of financial markets, which may not be the case. Option C is incorrect as it suggests that the cost of capital in Japan is universally higher than in the United States, which is not necessarily true. Option D is incorrect as there is a clear link between agency costs of managerial discretion and the cost of capital.

Recent Studies Suggest That Agency Costs of Managerial Discretion Are