Which of the following parties have the proper incentives to make risky,value increasing investments for the firm?

Question

Quizplus · Accepted Answer

Shareholders have the proper incentives to make risky, value-increasing investments for the firm because they stand to gain directly from any increase in the firm's value. Unlike creditors, who are primarily interested in the firm's ability to repay debt, or suppliers, who are concerned with the stability of their business relationship, shareholders benefit from the appreciation of their shares. Managers compensated only with a salary may not have the incentive to pursue risky investments unless their compensation is tied to performance or the value of the firm.

Which of the Following Parties Have the Proper Incentives to Make