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Author Question: When is a firm more likely to engage in excessively risky behaviors, when business is well, or when ... (Read 73 times)

CQXA

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on: Jun 30, 2018
When is a firm more likely to engage in excessively risky behaviors, when business is well, or when it is facing financial distress?
 
  What will be an ideal response?

Question 2

Intertemporal decisions involve economic decisions
 
  A) made within a given period of time.
  B) made in between two periods of time.
  C) involving trade-offs across periods of time.
  D) that ignore concerns about the future.


irishcancer18

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Reply #1 on: Jun 30, 2018
Answer to Question 1

Financial distress is a cause of moral hazard. Even heretofore prudent managers are tempted to take drastic action with the hope that a big payoff might save the company, and the realization that, if the company is about to fail, there's little to lose by taking big risks. Moreover, managers are understandably reluctant to reveal bad news, and the move away from transparency encourages behaviors that would be dismissed as unacceptable if they were easily observable.

Answer to Question 2

C


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CQXA

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Reply #2 on: Jun 30, 2018
Correct answers!


irishcancer18

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Reply #3 on: Jun 30, 2018
Great! Please up vote :D


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