Agency costs arise from:

A Perfect alignment of interests

B Conflicts of interest between managers (agents) and shareholders (principals)

C Reduced leverage

D Excessive dividends

✓ Correct Answer: Option B

Agency costs result from the divergence of interests between management and shareholders (e.g., empire building).

💡 Why is B) the correct answer?

The correct answer to the question "Agency costs arise from:" is Option B: Conflicts of interest between managers (agents) and shareholders (principals).

The other options — A) Perfect alignment of interests, C) Reduced leverage, D) Excessive dividends — are incorrect for this CFA Exam Prep question. As explained above: Agency costs result from the divergence of interests between management and shareholders (e.g., empire building).

📚 About This CFA Exam Prep Practice Question

This 2-level CFA Exam Prep question from the Corporate Finance topic is part of BrainForge Quiz's free exam preparation library. Each question includes the correct answer and a detailed explanation to help you understand the underlying concept, not just memorize the answer.

How to use this page: Read the question above, consider all four options (A through D), then check the highlighted correct answer and explanation. For active timed practice, start a free CFA Exam Prep practice test or use flashcards for spaced repetition review.

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Agency costs arise from:

✓ Correct Answer: Option B

📚 About This CFA Exam Prep Practice Question

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