From a business owner's perspective, which of the following is an agency cost?
A) Losses from poor economic conditions
B) Costs to provide appropriate incentive contracts for top management
C) General supplier price increases
D) Insufficient executive pay

Question

Quizplus · Accepted Answer

Agency costs refer to the costs incurred by a firm in ensuring that its managers act in the best interests of the shareholders. Providing appropriate incentive contracts for top management is one way of mitigating agency costs, as it aligns the interests of the managers with those of the shareholders. Losses from poor economic conditions and general supplier price increases are external factors that affect the firm and are not agency costs. Insufficient executive pay, on the other hand, may be related to agency costs if it leads to managers taking actions that benefit themselves at the expense of the shareholders. However, the question does not specify sufficient detail to conclude that this is the case.

From a Business Owner's Perspective, Which of the Following Is