Asked by Shakira Robertson on Jul 11, 2024
Verified
Which of the following statements is not consistent with agency theory?
A) Managers are employed to conduct business on behalf of the shareholders.
B) Managers have a legal and fiduciary duty to act in the best interests of the shareholders.
C) Managers are more likely to favour the interests of lenders in managing debt contracts.
D) Costs are incurred in monitoring and controlling agent's behaviour.
Agency Theory
The theory that deals with problems caused by separating ownership from control in the modern corporation.
Fiduciary Duty
A legal obligation of one party to act in the best interest of another when entrusted with care of property, finances, or other responsibilities.
Debt Contracts
A legal agreement specifying the conditions under which money is borrowed and must be repaid by the borrower.
- Familiarize yourself with the core principles of agency theory and the partnership between owners and managers, which includes risk aversion and a range of agency complications.
Verified Answer
NK
Nadiah KamalJul 16, 2024
Final Answer :
C
Explanation :
Agency theory states that managers are employed to act on behalf of the shareholders, and have a legal and fiduciary duty to act in their best interests. The theory also recognizes that there are costs involved in monitoring and controlling the behavior of agents to ensure they act in the best interests of the principals.
Choice C is not consistent with agency theory because it suggests that managers are more likely to favor the interests of lenders over shareholders, which goes against the principle that managers have a duty to act in the best interests of the shareholders.
Choice C is not consistent with agency theory because it suggests that managers are more likely to favor the interests of lenders over shareholders, which goes against the principle that managers have a duty to act in the best interests of the shareholders.
Learning Objectives
- Familiarize yourself with the core principles of agency theory and the partnership between owners and managers, which includes risk aversion and a range of agency complications.