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When a company gets into financial distress, the actions managers and shareholders take to protect their...

When a company gets into financial distress, the actions managers and shareholders take to protect their interests often increase company value.(True or False)

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Answer #1

This statement is False.

Managers and shareholders want to maximize firm value. However, when a firm is in financial distress, the interest of these people begins to differ and the actions they take to protect their self-interest reduces the firm value. For eg, If the firm is having financial difficulties and the managers decide to resign or many shareholders sell their shares, both of these actions will create a negative perception about the company and hence the company's value will decrease.

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