To Reduce Agency Costs, Issuing Debt Instead of Equity Provides

question 42

Multiple Choice

To reduce agency costs, issuing debt instead of equity provides incentives for managers to run a firm efficiently because ________.

• A) debt increases the funds available to managers to run the firm
• B) ownership of managers may remain more concentrated
• C) managers may take actions that benefit shareholders but harm creditors and lower the value of the firm
• D) shareholders prefer to decline new projects to save cash, even if their NPVs are positive