Which of the Following Mechanisms Would Be Most Likely to Help

question 36

Multiple Choice

Which of the following mechanisms would be most likely to help motivate managers to act in the best interests of shareholders?

• A) Decrease the use of restrictive covenants in bond agreements.
• B) Take actions that reduce the possibility of a hostile takeover.
• C) Elect a board of directors that allows managers greater freedom of action.
• D) Increase the proportion of executive compensation that comes from stock options and reduce the proportion that is paid as cash salaries.
• E) Eliminate a requirement that members of the board of directors have a substantial investment in the firm's stock.

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Definitions:

Internal Validity

The extent to which a study can demonstrate that a causal relationship exists between variables, free from external influences.

Construct Validity

The extent to which a test measures what it claims to be measuring, in the context of psychological testing and research.

Mundane Realism

Refers to whether the setting of an experiment physically resembles the real world.

Reactance

An unpleasant emotional response that people often experience when someone is trying to restrict their freedom.