In agency relationships between owners,managers and debt-holders,it can normally be assumed,in relation to debt contracts,that:
A) Managers will align their interests with those of debt-holders
B) Debt-holders will align their interests with those of owners
C) Managers will align their interests with those of owners
D) None of the above

Question

Quizplus · Accepted Answer

In agency relationships between owners, managers and debt-holders, it can normally be assumed that managers will align their interests with those of owners. This is because managers are hired by owners to maximize the value of the owners' investment. Debt-holders, on the other hand, have an interest in being repaid in a timely manner and may require certain financial covenants to be met to protect their investment. While debt-holders may have some influence over the actions of managers, it is ultimately up to the managers to make decisions that will maximize the value of the owners' investment. Therefore, option C is the best choice. Options A and B are not as accurate as managers are not always aligned to debt-holders' or owners' interests. Option D is too vague and does not give a specific answer.

In Agency Relationships Between Owners,managers and Debt-Holders,it Can Normally Be