Risk shifting implies:
A) When faced with bankruptcy, managers tend to invest in high risk, high return projects
B) When faced with bankruptcy, managers do not invest more equity capital
C) When faced with bankruptcy; managers may make accounting changes to conceal the true extent of the problem
D) All of the above

Question

Quizplus · Accepted Answer

Risk shifting refers to the tendency of managers to invest in high-risk, high-return projects when a firm is facing financial distress, as they have little to lose and potentially much to gain if the risky investment pays off.

Risk Shifting Implies