When Shareholders Pursue Selfish Strategies Such as Taking Large Risks

question 35

Multiple Choice

When shareholders pursue selfish strategies such as taking large risks or paying excessive dividends, these will result in:
I. no action by debtholders since these are equity holder concerns
II. positive agency costs, as bondholders impose various restrictions and covenants, which will diminish firm value
III. investments of the same risk class that the firm is in

• A) I only
• B) II only
• C) III only
• D) I and III only

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Definitions:

Arms

Limbs attached at the shoulder on the human body, primarily used for manual tasks and movement.

Rational Consideration

Thoughtful and reasonable evaluation or contemplation of something.

Social Justice

The pursuit of equality and fairness within society, particularly regarding the distribution of wealth, opportunities, and privileges.

Moral Guide

A set of principles or values that influence an individual's choices and behaviors, often based on societal, cultural, or personal beliefs.