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Which of the following is NOT a consequence or symptom of the agency problem?
A.Managers diverting funds into their own pet projects
B.Managers selecting quick payback projects
C.Managers engaging in empire building
D.Managers increasing the company’s level of financial gearingWHY NOT OPTION B
Option B is not a consequence or symptom of the agency problem because it can be seen as a strategy to ensure quick returns and reduce risk, which might align with shareholder interests. The agency problem typically involves managers acting in their own interests rather than those of the shareholders.
Options A, C, and D are more directly related to the agency problem:
A: Managers diverting funds into their own pet projects can be a misuse of company resources for personal interests.
C: Managers engaging in empire building can lead to inefficient allocation of resources to increase their own power and control.
D: Managers increasing the company’s level of financial gearing can increase financial risk, which might not align with shareholder interests.
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