Equity Contracts Account for a Small Fraction of External Funds

question 126

Multiple Choice

Equity contracts account for a small fraction of external funds raised by American businesses because

• A) costly state verification makes the equity contract less desirable than the debt contract.
• B) there is greater scope for moral hazard problems under equity contracts, as compared to debt contracts.
• C) equity contracts do not permit borrowing firms to raise additional funds by issuing debt.
• D) all of the above.
• E) both A and B of the above.

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Definitions:

Leader-member Exchange Theory

is a concept that explores how leaders develop different relationships with various group members, greatly affecting team dynamics and performance.

Shared Leadership

A leadership style where control and decision-making responsibilities are distributed among members of a group or organization.

Leaders

Individuals who guide or direct a group towards achieving a common goal through influence and direction.

Organization

A structured group of individuals working together to achieve a set of objectives or goals.