One principal-agent conflict is that between a firm's creditors (as a principal) and its shareholders (as agent). For example, after issuing risky debt, stockholders have an incentive to increase the riskiness of the firm's assets (e.g
, by changing operating strategy), which would tend to expropriate wealth from creditors to stockholders. Which of the assumptions of an ideal capital market is violated in this example?
a. Capital Markets are frictionless
b. Homogeneous expectations
c. Atomistic competition
d. The firm has a fixed investment program
e. Once chosen, the firm's financing is fixed
D
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Answer the following statements true (T) or false (F)
Engaging in constructive thought and natural reward strategies can ultimately lead to happiness by creating a positive psychological flow.
If a company’s production process is not aligned with the volume and variety demanded of the product, then ______.
a. the company has made a bad decision with regard to choice of process b. the company needs to stop production c. the company needs to find a new market for its product d. the company needs to offshore its production
Japanese firms moved manufacturing facilities to the U.S. in fear that Congress would impose high tariffs on products made in Japan
a. True b. False Indicate whether the statement is true or false
When cash is paid to a creditor, the firm's liabilities decrease.
Answer the following statement true (T) or false (F)