Which of the following are mechanisms that have evolved to mitigate potential agency problems? I) Using the firm's stock options for compensation
II. Hiring bickering family members as corporate spies
III. Boards of directors forcing out underperforming management
IV. Security analysts monitoring the firm closely
V. Takeover threats
A)II and V
B)I, III, and IV
C)I, III, IV, and V
D)III, IV, and V

Question

Quizplus · Accepted Answer

Using the firm's stock options for compensation aligns management's interests with shareholders', who also hold stock. Boards of directors forcing out underperforming management helps to remove poorly performing managers who may not be acting in the best interests of the shareholders. Security analysts monitoring the firm closely helps to uncover potential problems and can provide valuable information to shareholders. Takeover threats provide an external disciplinary mechanism to ensure management is acting in the best interests of shareholders. Hiring family members as corporate spies is not a mechanism to mitigate potential agency problems and could potentially create new ones.

Which of the Following Are Mechanisms That Have Evolved to Mitigate