A disadvantage of using stock options to compensate managers is that
A)it encourages managers to undertake projects that will increase stock price.
B)it encourages managers to engage in empire building.
C)it can create an incentive for managers to manipulate information to prop up a stock price temporarily, giving them a chance to cash out before the price returns to a level reflective of the firm's true prospects.
D)All of the options

Question

Quizplus · Accepted Answer

Encouraging managers to undertake projects that will increase stock price is a desired characteristic.Encouraging managers to engage in empire building is not necessarily a good or bad thing in and of itself.Creating an incentive for managers to manipulate information to prop up a stock price temporarily creates an agency problem.

A Disadvantage of Using Stock Options to Compensate Managers Is