Which of the following parties desire the firm to take the most risks?
A) Managers
B) Debtholders
C) Owners
D) All parties desire the firm to take the same level of risk.

Question

Quizplus · Accepted Answer

Owners (or shareholders) typically desire the firm to take the most risks because they stand to gain the most from any upside potential. Their returns (in the form of stock price appreciation or dividends) are directly linked to the firm's performance. In contrast, debtholders receive fixed interest payments and are more concerned with the firm's ability to make these payments, thus preferring lower risk. Managers' preferences can vary but are often aligned with owners if their compensation is linked to performance; however, they might be more risk-averse if their personal job security is at stake.

Which of the Following Parties Desire the Firm to Take