A venture capital firm protects its equity investment from moral hazard through which of the following means?

Question

Quizplus · Accepted Answer

Option A is correct because having people from the venture capital firm on the board of directors enables them to monitor the borrowing firm's activities, thereby reducing the chances of moral hazard. 
Option B is correct because it prevents the borrowing firm from selling its equity investment to anyone else, ensuring that the venture capitalist retains control and can prevent any behavior that might lead to moral hazard.
Option C is not a sufficient means to protect equity investment in the borrowing firm from moral hazard, as replacing the management may not necessarily solve all potential problems. 
Option D is the best answer because it covers both A and B, which are effective measures for reducing moral hazard.

A Venture Capital Firm Protects Its Equity Investment from Moral