Conflict resolution of the stockholder-lender conflict in smaller market-oriented firms is most effectively accomplished by
A) financial intermediation (monitoring).
B) financial intermediation (ownership consolidation).
C) rating agencies.
D) managerial compensation.

Question

Quizplus · Accepted Answer

Financial intermediation through monitoring is the most effective way to resolve the stockholder-lender conflict in smaller market-oriented firms. This involves the appointment of an independent third-party financial intermediary to monitor the firm's performance and ensure that the interests of both the stockholders and lenders are protected. This helps to build trust and confidence among both parties, thus reducing the conflict between them. Financial intermediation through ownership consolidation (choice B) is not feasible in smaller firms as they lack the resources to buy out their lenders. Rating agencies (choice C) can provide useful information about the creditworthiness of the firm, but they cannot resolve the stockholder-lender conflict. Managerial compensation (choice D) may align the interests of managers with stockholders, but it does not address the conflict between stockholders and lenders.

Conflict Resolution of the Stockholder-Lender Conflict in Smaller Market-Oriented Firms