A type of agency problem that results in shareholders gaining from decisions that increase the risk of the firm sufficiently,even if they have negative NPV is:

Question

Quizplus · Accepted Answer

Asset substitution is a type of agency problem in which shareholders may push for decisions that increase the risk of the firm in order to increase the potential for higher returns, even if the decision has a negative net present value (NPV). This can occur when shareholders hold a significant portion of the firm's equity and have a short-term focus on maximizing their own returns. By increasing the risk of the firm, shareholders may be able to benefit in the short term while leaving the potential costs and negative effects for long-term stakeholders, such as bondholders or future shareholders.

A Type of Agency Problem That Results in Shareholders Gaining