Solutions to the Moral Hazard Problem Include

question 53

Multiple Choice

Solutions to the moral hazard problem include

• A)low net worth.
• B)monitoring and enforcement of restrictive covenants.
• C)greater reliance on equity contracts and less on debt contracts.
• D)greater reliance on debt contracts than financial intermediaries.

---

Definitions:

Corporations Act

A major legislation governing corporate activities in certain jurisdictions, such as the Corporations Act 2001 in Australia.

Dividend

A portion of a company's earnings, decided by the board of directors, to be distributed among shareholders.

Pre-acquisition Equity

The equity interest that an acquirer holds in an acquiree before the business combination, accounted for in the acquisition process.

Post-acquisition Equity

The portion of an acquired company's equity that accrues or changes after the date of acquisition by the parent company.