Which of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders?
A) Compensating managers with stock options.
B) Financing risky projects with additional debt.
C) The threat of hostile takeovers.
D) The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions.
E) Abolishing the Security and Exchange Commission.

Question

Quizplus · Accepted Answer

Stock options and the threat of takeovers reduce conflicts between managers and shareholders.Financing risky projects with additional debt increases the potential for conflicts between stockholders and bondholders.Adding covenants to bond agreements will reduce conflicts between stockholders and bondholders.

Which of the Following Actions Would Be Most Likely to Reduce