Which of the Following Statements Is FALSE

question 2

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:

Consumer Surveys

A method used by businesses to collect information on customer preferences, behaviors, and satisfaction through questionnaires.

Belief Perseverance

The psychological tendency to maintain one's beliefs even in the face of contradictory evidence or information.

Dissonance

A state of conflict or inconsistency between one's beliefs, attitudes, or actions, often leading to discomfort and a desire for resolution.

Attitude Polarization

The phenomenon where a disagreement becomes more extreme as the differing parties continue to consider more information in support of their respective opinions.