Which of the following statements is CORRECT?
以下哪项陈述是正确的？

Question

BlackTom AI · Accepted Answer

Question restatement: Which of the following statements is CORRECT?

Option 1: 'Bond covenants are an effective way to resolve conflicts between shareholders and managers.' Bond covenants are contractual provisions in debt agreements that constrain borrower behavior to protect lenders, not primarily a tool for resolving shareholder-manager conflicts. This statement misattributes the purpose of covenants to corporate governance, so it is incorrect.

Option 2: 'Because of their simplified organization, it is easier for proprietors and partnerships to raise large amounts of outside capital than it is for corporations.' In reality, corporations generally have easier access to large-scale outside capital due to their separate legal entity status, transferability of shares, and dilute ownership. Proprietorships and partnerships typically face more constraints in attracting substantial external funding. This makes the statement incorrect.

Option 3: 'One advantage to forming a corporation is that the owners of the firm have limited liability.' This is a fundamental advantage of the corporate form: owners (shareholders) are typically not personally liable beyond their investment in the corporation. This limited liability feature is widely taught as a key benefit of incorporation, so this statement is correct.

Option 4: 'Corporations face few regulations and more favorable tax treatment than do proprietorships and partnerships.' This is inaccurate in several respects. Corporations often face substantial regulatory requirements (disclosures, governance rules, reporting) and may face double taxation on corporate profits and dividends in many jurisdictions, whereas proprietorships and partnerships generally have simpler regulatory burdens and different tax treatment. Therefore, this option is incorrect.

Option 5: 'Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value compared to managers who do not face the threat of hostile takeovers.' The presence of hostile takeover threats is typically argued to discipline managers and align their incentives with shareholder value, not reduce it. Hence this statement is incorrect.

Summary of evaluation: The incorrect options describe bond covenants as a governance tool, overstate the ease of external financing for non-corporate forms, incorrectly claim favorable tax and lax regulation for corporations, and misstate the impact of hostile takeovers on managerial incentives. The correct concept highlighted is the limited liability benefit of forming a corporation.

Which of the following statements is CORRECT? 以下哪项陈述是正确的？

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