The Decline in the Use of Equity Finance and the Increase

question 56

Multiple Choice

The decline in the use of equity finance and the increase in corporate borrowings during the 1980s might be explained as an attempt by firms to

• A)avoid the strict regulations surrounding new issues of common stock.
• B)avoid adverse selection problems.
• C)disguise questionable expenditures from shareholders.
• D)mitigate principal-agent problems.

---

Definitions:

Cent

A monetary unit that is equal to one hundredth of the base unit of currency in many countries, such as the dollar or euro.

Accurate

The quality of being true, correct, or precise.

Cent

The smallest unit of currency in many countries, equal to 1/100 of the base unit.

Insurance Broker

A professional intermediary who advises individuals and businesses on insurance needs and negotiates insurance contracts on their behalf with insurers.