A manager under-investing in projects that are in shareholder's best interests but which may reduce the manager's own bonus payment, is classed as which type of agency cost?
A) Loss from a poor decision
B) Monitoring cost
C) Loss from incongruent goals
D) Contracting cost

Question

Quizplus · Accepted Answer

This scenario represents a loss from incongruent goals, where the manager's personal interest (maximizing their own bonus) conflicts with the interest of the shareholders (maximizing the value of their investment by investing in profitable projects). The other options do not accurately describe this situation.

A Manager Under-Investing in Projects That Are in Shareholder's Best