- CFA Exams
- CFA Exam: Level I 2021
- 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
Aligning the preferences of principals and agents can reduce agency costs. An example is ______.
B. financial audits and financial reporting
C. issuing stock options to managers and employees
A. lobbying/political costs
B. financial audits and financial reporting
C. issuing stock options to managers and employees
Correct Answer: C
User Contributed Comments 3
| User | Comment |
|---|---|
| forry9er | because the agency costs are reduced when interests are more closely aligned? |
| merc5559 | yes |
| Rasikh | Agency costs are the costs incurred by the principle due to agent making a sub-optimal decision, defined as a decision in which the agent prefers his own interest over the principal's. |