Which of the following statements is CORRECT?

A. 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.
B. The threat of takeover generally increases potential conflicts between stockholders and managers.
C. Managerial compensation plans cannot be used to reduce potential conflicts between stockholders and managers.
D. The threat of takeovers tends to reduce potential conflicts between stockholders and managers.
E. The creation of the Securities and Exchange Commission (SEC) has eliminated conflicts between managers and stockholders.

As with the threat of takeover, there comes the risk of losing control, power, monetary benefits, the stockholder's tend to agree with managers, and the manager's tend to agree with stockholders.

As both aims for no takeover of the company, both work in for each other, agreeing to the suggestions placed.

There is no dis-regard to any of the suggestions paid by any of the party. This threat actually creates moral harmony and unity among stakeholders and management.

Therefore, correct answer is:

D. The threat of takeovers tends to reduce potential conflicts between stockholders and managers.