Agency costs are likely to arise when
A)principals and agents have different goals.
B)owners and managers are the same.
C)stockholders are involved in day-to-day operations of the company.
D)the stockholders are aware of the degree to which the agents are pursuing the principal's goals.
E)there is information symmetry between the agent and the principal.

Question

Quizplus · Accepted Answer

Agency costs arise when principals and agents have different goals because the agents may prioritize their own goals over those of the principals, leading to conflicts of interest and potentially costly actions for the principals (such as excessive spending or opportunistic behavior by the agents). The other choices are not necessarily related to agency costs, as having the same owners and managers (B) or stockholders involved in day-to-day operations (C) may not create conflicts of interest, and information symmetry (E) could actually help reduce agency costs by ensuring that the principal and agent have the same information. Choice D is incorrect because information asymmetry, not symmetry, is usually associated with agency costs.

Agency Costs Are Likely to Arise When