Deck 14: Debtholders

Question 1

Which one of the following statements about debtholder expropriation is true?

A)Debtholders tend to expropriate shareholders in firms with dispersed ownership and control.
B)Debtholders tend to lose out in leveraged buy-outs and acquisitions by hedge funds.
C)There is no consistent evidence of debtholder expropriation.
D)None of the above.

Answer 1

B

Question 2

Which one of the following statements about relationship-based banking is correct?

A)There is a danger that the bank will end with monopolistic power given the information it collects on the firm.
B)Relationship-based banking typically makes firms more dependent on internal funds.
C)A close, long-term relationship between a bank and a firm will increase asymmetry of information between the two.
D)None of the above.

Answer 2

A

Question 3

One of the reasons why there is conflicting evidence about the benefits from close bank-relationships is that ...

A)Close bank ties only exist in countries with weak disclosure and financial data of low quality.
B)Banks only lend to young and risky firms that justify higher interest rates.
C)Banks tend to smooth out the interest rates they charge to firms over time.
D)None of the above.

Answer 3

C