You and a friend visit the headquarters of a company and are awestruck by the expensive artwork and designer furniture that grace every office. Your friend is very impressed and encourages you to consider buying stock in the company, arguing that it must be really successful to afford such elegant surroundings.

What further information (other than the usual financial data) would you obtain before making an investment decision? multiple choice

A) The luxurious surroundings could be the result of a principal-agent problem. Before making your investment decision, make sure there is no separation between ownership and management and that management is afforded all the privileges available to them.

B) Only a successful, well-run company could afford such lavish surroundings. The only useful information you could obtain before making your investment decision is whether these elegant surroundings will be available to you as a stockholder.

C) Only a successful, well-run company could afford such lavish surroundings. Before making your investment decision, make sure there is no separation between ownership and management and that management is afforded all the privileges available to them.

D) The luxurious surroundings could be the result of a principal-agent problem. You should find out if there is a separation between ownership and management and, if so, if there is a pattern of lavish and unnecessary spending by management.