A debt contract is more likely to be incentive compatible if
A) the company must follow standard accounting principles.
B) the funds are provided by a venture capital firm.
C) owners of the firm have more of their own money in the business.
D) all of the above.
E) only B and C.

Question

Quizplus · Accepted Answer

When owners have more of their own money in the business, they are more likely to act in the best interest of the firm, aligning incentives between the owners and creditors.

A Debt Contract Is More Likely to Be Incentive Compatible