Which of the following statements is not consistent with agency theory?
A) Managers are employed to conduct business on behalf of the shareholders.
B) Managers have a legal and fiduciary duty to act in the best interests of the shareholders.
C) Managers are more likely to favour the interests of lenders in managing debt contracts.
D) Costs are incurred in monitoring and controlling agent's behaviour.

Question

Quizplus · Accepted Answer

Agency theory states that managers are employed to act on behalf of the shareholders, and have a legal and fiduciary duty to act in their best interests. The theory also recognizes that there are costs involved in monitoring and controlling the behavior of agents to ensure they act in the best interests of the principals.

Choice C is not consistent with agency theory because it suggests that managers are more likely to favor the interests of lenders over shareholders, which goes against the principle that managers have a duty to act in the best interests of the shareholders.

Which of the Following Statements Is Not Consistent with Agency