Which of the following is true? 1. Shareholder activism requires the investors to exercise their voting rights. 2. Agency problem arises if the management does not hold the majority share in the firm (i.e., more than 50%). 3. Stock options and performance plans are examples of external market forces. 4. Agency costs are borne by all the stakeholders, including the shareholders.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Which of the following is true?
1. Shareholder activism requires the investors to exercise their voting rights.
2. Agency problem arises if the management does not hold the majority share in the firm (i.e., more than 50%).
3. Stock options and performance plans are examples of external market forces.
4. Agency costs are borne by all the stakeholders, including the shareholders.
Expert Solution
Step 1

First let us look at each statement.

Statement 1
Shareholder activism required shareholders to exercise their voting rights to bring change in the company. 

Statement 2
Agency problems arise when there is conflict between management and board of directors irrespective of the majority stake in the company.

Statement 3
Stock options and performance plans are internal incentives to the management of the company to link their pay to the performance of the stock price

Statement 4
Agency costs are cost that occur when there is an agency problem. These are borne by the shareholders of the company.

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