According to the management entrenchment theory of capital structure,managers choose a capital structure to avoid the discipline of debt and to maintain their own job security.Thus,managers seek to ________ to prevent the job loss that would accompany financial distress.

Question

Quizplus · Accepted Answer

According to the management entrenchment theory, managers are more concerned about job security than maximizing shareholder value. So, they will avoid a high level of debt to prevent the risk of financial distress that can lead to their job loss. Therefore, the option A) minimize leverage is the best choice.

According to the Management Entrenchment Theory of Capital Structure,managers Choose