Which one of the following actions by a financial manager is most apt to create 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)refusing to expand the company if doing so will lower the value of the equity
D)agreeing to pay bonuses based on the market value of the company stock rather than on the firm's level of sales
E)increasing current profits when doing so lowers the value of the firm's equity

Question

Quizplus · Accepted Answer

Option E is most likely to create an agency problem because it involves actions that benefit the manager in the short term (e.g., through bonuses tied to current profits) at the expense of the long-term value of the firm's equity, which is not in the best interest of the shareholders.

Which One of the Following Actions by a Financial Manager