Question

Test DOCX 37 KB .. Which of the following is an illustration of a situation of agency conflict? a. The company buys a corporate jet for senior officers frequent business travels presumably to save travel cost. The CEO convinces the Board of Directors to grant him a severance package amounting to $20 million in cash and stock (allegedly to avoid costly lawsuits) even though he is being forced out for poor performance An oil company borrowed a large sum by issuing bonds to the public and invested the money in a risky social networking start-up, although the bond carries no restrictions on such an investment. d. ABC Co, borrowed a loan from XYZ National Bank at the same time as it paid an extra dividend to its shareholders (dividend was announced 2 months ago) Open Word 10. Which of the following cases is not cor insider trading? a. You bought on a tip from your broker W RRORE

Answer 1

In corporate finance, agency conflict refers to conflict of interest between a company's management and the company's stockholders.

The manager, acting as the agent for the shareholders, has to make decisions which will maximize shareholder wealth even though it is in the manager’s best interest to maximize his own wealth.  

Hence, out of the 4 options, option B refers to a situation depicting agency conflict

In Option B - CEO convinces board of directors to grant him a severance package even though he is being forced out due to poor performance

Hence, it clearly depicts agency conflict