Which one of the following actions by a financial manager creates 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)agreeing to expand the company at the expense of stockholders' value
D)agreeing to pay bonuses based on the book value of the company stock
E)increasing current costs in order to increase the market value of the stockholders' equity

Question

Quizplus · Accepted Answer

Agreeing to expand the company at the expense of stockholders' value creates an agency problem because it prioritizes the personal goals of the manager (expansion) over the interests of the shareholders (maximizing value). This creates a conflict of interest and may not be in the best interest of the shareholders.

Which One of the Following Actions by a Financial Manager