Select as choices all of the following that you believe depi

Select as choices all of the following that you believe depict the \'agency\' relationship inside the corporation.

Note: A correct answer requires that you check ALL that apply.

1. One of the goals of the study of modern corporate finance is to maximize agency costs.

2. One type of agency costs are lost opportunities caused by conflicts too difficult to resolve.

3. In the context of the agency relationship managers are the principals.

4. The compensation plan has many advantages but using it to reduce agency costs is NOT one of these advantages.

5. The goals of the managers may not always align themselves with the goals of the shareholders.

6.The goal of shareholder wealth maximization often leads to agency costs.

7. In the context of the agency relationship shareholders are the principals.

Solution

The options that apply to \"Agency\" relationship inside orgainzation are:

2. One type of agency costs are lost opportunities caused by conflicts too difficult to resolve.

3. In the context of the agency relationship managers are the principals.

5. The goals of the managers may not always align themselves with the goals of the shareholders.

These are the reasons which leads to an agency problem in an organization