ER Ch. 4 - Borrowing and the subsequent obligation to make...

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Borrowing, and the subsequent obligation to make interest payments on time, serves Answer Selected Answer: to ameliorate the agency costs of equity, up to a point. When large shareholders have control over a corporation, Answer Selected Answer: there is a possibility that the large shareholders control the managers and incentivise them to expropriate wealth from small outside shareholders. Correct Answer: Many companies have provided managers with executive stock options, which Answer Selected Answer: All of the above. Which of the following statements is true regarding free cash flow? Answer Selected Answer: All of the above. Companies domiciled in countries with weak investor protection Answer Selected Answer: may need to have concentrated ownership as a substitute for legal protection. In the United States, shareholders of a corporation elect Answer Selected Answer: the board of directors. Suppose a U.S. company continually performs poorly and all of its internal governance
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Unformatted text preview: mechanisms fail to correct the problem. What will happen in this situation? Answer Selected Answer: All of the above. Poor investor protection results in Answer Selected Answer: concentrated ownership, underdeveloped capital markets, and slower economic growth. The greatest advantage of the corporate form of business organization is Answer Selected Answer: the efficient risk sharing that allows corporations to raise large amounts of capital. Studies report that foreign firms listed in the United States are valued more than those from the same countries that are not listed in the United States. This is seen because Answer Selected Answer: firms listed in the United States can take better advantage of growth opportunities and controlling shareholders cannot extract as many private benefits....
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