Practice question · Multiple choice
Agency cost is defined as value lost to diverging interests PLUS the cost of monitoring. Why is monitoring counted as part of the problem rather than the solution?
Hints
- Ask what the auditors and the board are being paid out of.
- Would spending more on oversight always be worth it?
Show the answer
C. Because monitoring consumes real resources that produce nothing
Why
Both terms are costs of the same defect. That is why governance is a trade-off rather than a fix: at some point another euro of monitoring saves less than a euro of misalignment.
Practise Corporate Governance
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More questions on Corporate Governance
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