Which of the following agency problems represents a form of moral hazard?

Question

Quizplus · Accepted Answer

All of the agency problems listed involve moral hazard. Asset substitution occurs when managers use company resources to pursue personal gains rather than maximizing shareholder value. Debt overhang occurs when a company's existing debt reduces its incentive to take on new investments or projects because the benefits will accrue to debtholders rather than shareholders. Cashing out occurs when managers sell their shares in a company to realize gains for themselves rather than holding onto their shares and working to maximize shareholder value in the long term. All of these actions represent a form of moral hazard, where managers prioritize their personal interests over those of shareholders.

Which of the Following Agency Problems Represents a Form of Moral