The conflict resulting from a manager's desire to increase a firm's risk without increasing current borrowing costs and lenders' desire to limit lending is one effect of the ________ problem.
A) agency
B) leverage
C) capital
D) variable cost

Question

Quizplus · Accepted Answer

The conflict described is an example of the agency problem, which arises when there's a conflict of interest between the management (agents) and the lenders or shareholders (principals). In this case, the managers want to increase the firm's risk to potentially increase returns without raising borrowing costs, which may not align with the lenders' interests to limit risk and ensure repayment.

The Conflict Resulting from a Manager's Desire to Increase a Firm's