Which one of the following actions by a financial manager creates an agency problem?
A) Refusing to borrow money when doing so will create losses for the firm.
B) Refusing to lower selling prices if doing so will reduce the net profits.
C) Agreeing to expand the company at the expense of stockholders' value.
D) Agreeing to pay bonuses based on the market value of the company stock.
E) Increasing current costs to increase the market value of the stockholders' equity.

Question

Quizplus · Accepted Answer

An agency problem occurs when the actions of a decision-maker (agent) conflict with the best interests of those the decision-maker is supposed to serve (principals). In this case, agreeing to expand the company at the expense of stockholders' value represents an agency problem because it prioritizes other goals over the financial interests of the stockholders, who are the principals in this scenario.

Which One of the Following Actions by a Financial Manager