- CFA Exams
- CFA Level I Exam
- Study Session 10. Corporate Finance (1)
- Reading 31. Introduction to Corporate Governance and Other ESG Considerations
- Subject 3. Principal-Agent and Other Relationships in Corporate Governance
CFA Practice Question
There are 233 practice questions for this study session.
CFA Practice Question
Which of the following statements is not true?
A. Agency costs include managerial perquisite consumption.
B. Agency costs include the monitoring costs of shareholders.
C. The basic financial objective of managers is the maximization of shareholders' wealth.
User Contributed Comments 13
|tony1973||C is correct: managers don't care the shareholders' wealth. They care about their own interest such as job security, compensation, etc.|
|examinee||How is B correct? I thought Agency costs is about monitoring managers not shareholders.|
|fuller||yes monitoring manager but it's the cost of shareholders. B is true.|
|rockeR||This Q is quite tricky. The purpose of this Q is that inform you the actual goal of managers which causes the conflict of interest btw shareholders and managers.|
|mtcfa||The basic financial objective of managers is to fill their own pockets.|
|sourav||Basic objective of financial management is shareholder wealth maximization... not financial managers, no wonder some of us want to be financial managers.|
|naldo318||Very Tricky. Becareful|
|steved333||Um, the basic financial objective of managers is to maximize profit, not shareholder wealth. Pretty simple.|
|8thlegend||Isn't this question a bias question? Not all managers really care for themselves.
I have met many managers with not short term gains but a long one.
C can be correct
|georgek||maximize profits, not necessarily shareholder wealth.|
|YOUCANDOIT||this feels more like an ethics Q|
|frants54||Maximizing profits equals maximizing shareholder wealth. rockeR is right - the question prooves that manger's basic financial objective is maximising their own wealth before shareholder wealth. That is why the problem is reduced by offering mangers share options|
|jstid40||I think georgek is spot on. The key here is the difference between maximizing shareholders wealth and maximizing shareholder profit. The management can effect the profit of the shareholders they cannot effect the overall wealth of any shareholder. Just because my 500 shares of AAPL are doing well doesn't mean my 1000 shares of TSLA are.|