Final answer:
Scenario (c), where good and bad firms are indistinguishable and good firms must sell stocks at discounted prices, does not feature agency costs. It reflects an issue with information asymmetry in the market rather than a conflict of interest between managers and shareholders.
Step-by-step explanation:
In the context of identifying which scenario does not feature agency cost, the question presents four different cases. Agency costs occur when there's a conflict of interest between the owners (shareholders) and the managers of a company. The manager's actions, whether through personal spending or investments that do not align with the shareholders' best interests, typically embody such costs.
The following scenarios that involve agency costs are: (a) A manager engages in wasteful investment for his ambition to build a corporate empire, (d) A manager uses its firm's cash to purchase helicopters for his personal use, and (b) When bankruptcy is likely, shareholders vote for risky projects, gambling for resurrection. These activities all involve managers making decisions that could potentially harm shareholders' value for their personal gain or differing risk preferences, which are quintessential examples of agency costs.
However, scenario (c) When good and bad firms are indistinguishable, good firms sell stocks at discounted prices, does not exemplify agency costs. This scenario depicts an issue with information asymmetry, where external investors cannot perfectly discern the quality of the firm's management or its true worth, leading potentially good companies to sell shares at a discount to compensate for the perceived higher risk. It's more about the market's imperfect information than the conflict of interest between managers and shareholders.
As firms grow and become more established, following venture capital investments, available financial data makes it easier for outside investors like bondholders and shareholders to be informed and hence more willing to invest, reducing the dependence on personal knowledge of the firm's managers.