Question

Which of the following statements is CORRECT?

	The threat of takeovers tends to reduce potential conflicts between stockholders and managers.
	One of the ways in which firms can mitigate or reduce potential conflicts between bondholders and stockholders is by increasing the amount of debt in the firm's capital structure.
	Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers.
	The threat of takeover generally increases potential conflicts between stockholders and managers.

Answer 1

The threat of takeover tends to reduce potential conflict between stockholders and managers as stockholders stars to fear that they will lose the control, and managers start to feel that they will lose the job, so they both are reducing their potential conflict and communicating more.

Rest of the statements are incorrect as they are not staying correct scenarios. They want no takeover, so they work in benefit of each other for mutual goal

Correct answer is option ( A).