Question

Which one of the following statements is TRUE? a. The commission required by the Federal Housing Agency for a small business loan is an example of an agency cost. b. An example of an agency cost is when the board of directors pays a dividend to shareholders. c. An agency cost is the reduction in firm value due to agency conflicts. d. An example of an agency cost is when an attorney hires an expert witness for a trial. e. An agency cost is the wage required to pay someone who is hired to perform a service

Answer 1

The answer is option c.) An agency cost is the reduction in firm value due to agency conflicts.

Step-by-step explanation:

An agency cost is a type of internal company expense which comes from the actions of an agent acting on behalf of a principal.

Agency costs typically arise in the wake of core inefficiencies, unsatisfactory performances and disruptions, such as conflicts of interest between shareholders and management.

The cost of such actions increases the operating cost of the company while providing no added benefit or value to shareholders.