P0 Q124

Discussion in 'Practice modules' started by Nutan, Oct 29, 2011.

  1. Nutan

    Nutan Member

    Part of question 124 (in the Acted P0 booklets) asks if the following statement is true:

    In most well-run companies there would be no agency costs.

    The answer says it is not true and refers to unit 7, section 2. I cannot find any mention of agency costs in this section of core reading or remember seeing it anywhere else. Can anyone explain how agency costs are defined please?

    Thanks!
     
  2. Mike Lewry

    Mike Lewry Member

    It says in the text "One particular concern of attempts to create good corporate governance is that management might make decisions based more on their own personal interests than on those of relevant stakeholders."

    These costs to the stakeholders of such decisions are known as agency costs.
     
  3. Nutan

    Nutan Member

    Ok, thanks for your reply. :)
     

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