Examples of agency costs incurred by shareholders to minimize agency problems are: A) Expenditures associated with independent auditing

Marketing Dec 28, 2020

Examples of agency costs incurred by shareholders to minimize agency problems are:

A) Expenditures associated with independent auditing.

B) Expenditures associated with SEC approval.

C) Expenditures associated with monitoring management's actions

D) Expenditures associated with inventory control.

Expert Solution

The answer is C.

In practice, managers would tend to focus on the short-run performance, which will be evaluated to determine the efficiency in management. In the other hand, business owners would expect to increase the value of their investment in the long-run, which meant the concentration of the short-run might cost the business future. With that being said, the shareholders would spend additional funds to monitor managers' actions, which will secure their long-term interests.

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