Which of the Following Statements Is False

question 7

Multiple Choice

Which of the following statements is false?

• A) Leverage can reduce the degree of managerial entrenchment because managers are more likely to be fired when a firm faces financial distress.
• B) When a firm is highly levered, creditors themselves will closely monitor the actions of managers, providing an additional layer of management oversight.
• C) According to the empire building hypothesis, leverage increases firm value because it commits the firm to making future interest payments, thereby reducing excess cash flows and wasteful investment by managers.
• D) Managers of large firms tend to earn higher salaries, and they may also have more prestige and garner greater publicity than managers of small firms. As a result, managers may expand (or fail to shut down) unprofitable divisions, pay too much for acquisitions, make unnecessary capital expenditures, or hire unnecessary employees.

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Definitions:

Eclectic Approach

A method that combines elements from various theories or techniques to tailor treatment to an individual's needs.

Psychological Perspective

An approach or viewpoint in psychology that emphasizes understanding human behavior and thought processes based on psychological principles and theories.

Freudian Psychodynamic

A theoretical framework that focuses on unconscious processes and childhood experiences in shaping personality and behavior.

Covert Processes

Covert processes refer to mental operations or thoughts that are automatic or subconscious, influencing behavior without conscious awareness.