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Which of the following actions would be most likely to reduce potential conflicts between stockholders and bondholders?
A. The firm begins to use only long-term debt, e.g., debt that matures in 30 years or more, rather than debt that matures in less than a. one year.
B. The passage of laws that make it harder for hostile takeovers to succeed.
C. Including restrictive covenants in the company's bond indenture (which is the contract between the company and its bondholders).
D. A government regulation that banned the use of convertible bonds.
E. Compensating managers with more stock options and less cash income.

Respuesta :

Answer:

C. Including restrictive covenants in the company's bond indenture (which is the contract between the company and its bondholders).  

Explanation:

One of the major actions that would most likely reduce potential conflicts between stockholders and bondholder is the Inclusion of restrictive covenants in the company's bond indenture (which is the contract between the company and its bondholders).  

Restrictive covenants are Bond covenants that are designed to protect the interests of both parties by forbiding the issuer from undertaking certain activities that are detrimental to the holders of the bond.

Restrictive covenants manages the agency problem between stockholders and bondholder.

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