Debt Can Reduce Agency Costs Between Shareholders and Management,but

question 76

Multiple Choice

Debt can reduce agency costs between shareholders and management,but

• A)only if the firm is totally up to its eyeballs in debt.
• B)only to the extent that the firm can commit all of its free cash flow.
• C)excessive debt can create its own agency conflicts.
• D)debt is best used as a corporate governance mechanism by young companies with limited cash reserves.

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Definitions:

Structural Variables

Aspects related to the organization's structure, such as hierarchy, departmentalization, and division of labor, that influence its operations.

Contextual Variables

Factors that influence the performance and behavior of individuals or organizations, but exist outside of their direct control.

Firm's Competitive Advantage

The unique attributes or capabilities that enable a business to outperform its competitors and achieve superior margins.

Organizational Goals

The objectives or targets that an organization aims to achieve, which guide its strategic planning and operations.