Agency problems may give rise to costs that _____ the market value of firms

The answer is B.

When the agency problems arise in a business, the firm would acquire more costs to monitor the managers' activities and decisions, which will reduce the net income in short-term. In addition, the agency problems between managers and shareholders might lead to a fact managers would process investment opportunities on their interests of commission, bonuses, but not the shareholders'o wealth. With that being said, the entire business would focus on short-term objectives and ignore the long-run development, which will reduce potential earnings in the future and negatively impact the business valuation.