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

Question

Quizplus · Accepted Answer

Agreeing to expand the company at the expense of stockholders' value creates an agency problem as the financial manager is prioritizing their own interests (i.e. growing the company and potentially increasing their own pay/benefits) over the interests of the shareholders (i.e. maximizing their returns on investment).

Which One of the Following Actions by a Financial Manager