Agency costs can be reduced by
A)monitoring managers' efforts only.
B)monitoring managers' efforts and managers' actions.
C)monitoring managers' efforts, monitoring managers' actions, and intervening when managers veer off-course.
D)intervening when managers veer off-course.

Question

Quizplus · Accepted Answer

Monitoring managers' efforts and actions and intervening when necessary are all effective ways to reduce agency costs. By monitoring both efforts and actions, the principal can ensure that the manager is working hard and making decisions that align with the principal's interests. If the manager veers off-course, intervention can correct the problem before it becomes costly. Therefore, (C) is the best choice. Monitoring managers' efforts only (A) is incomplete as it does not address actions, and (D) is not comprehensive enough as it only addresses intervention without sufficient monitoring.

Agency Costs Can Be Reduced by