Which of the following mechanisms is used to motivate managers to act in the interests of shareholders?
A) Bond covenants.
B) The threat of a takeover.
C) Executive stock options.
D) Statements a and b are correct.
E) Statements b and c are correct.

Question

Quizplus · Accepted Answer

The threat of a takeover can motivate managers to act in the interests of shareholders because it puts pressure on them to increase shareholder value or risk losing their jobs. Executive stock options also align managers' interests with shareholders as they receive more compensation if the company's stock price increases. Bond covenants do not necessarily motivate managers to act in the interests of shareholders as they primarily serve to protect bondholders' interests. Therefore, statements b and c are correct, making choice E the best answer.

Which of the Following Mechanisms Is Used to Motivate Managers