Which of the following is a tool that may be used to minimize agency problems?
A)capital rationing
B)contingent compensation
C)audits
D)All of the above can be used to minimize agency problems.

Question

Quizplus · Accepted Answer

All of the given options can be used to minimize agency problems.

Capital rationing can limit the amount of capital available to management, forcing them to use it efficiently and make carefully considered investment decisions.

Contingent compensation, such as performance-based bonuses or stock options, can align the interests of management with those of the shareholders, providing incentives to work towards increasing the value of the company.

Audits provide an independent review of a company's financial statements, providing shareholders with assurance that the financial information being presented is accurate and reliable, reducing the potential for manipulation by management. Capital rationing can be used to minimize agency problems by limiting the amount of funds available to managers, which encourages them to invest only in projects that are likely to provide the highest returns for the company. Contingent compensation can be used to align the interests of managers with those of shareholders by linking managerial compensation to the performance of the company. Audits can be used to monitor and control the actions of managers, reducing the possibility of unethical or self-serving behavior. All of these tools can be used together or separately to minimize agency problems.

Which of the Following Is a Tool That May Be