To Reduce Agency Costs, Issuing Debt Instead of Equity Provides

Multiple Choice

To reduce agency costs, issuing debt instead of equity provides incentives for managers to run a firm efficiently because ________.

A) debt increases the funds available to managers to run the firm
B) ownership of managers may remain more concentrated
C) managers may take actions that benefit shareholders but harm creditors and lower the value of the firm
D) shareholders prefer to decline new projects to save cash, even if their NPVs are positive