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11) __________ occurs because firm owners have an incentive to understate their true riskiness to borrow on a more favorable basis. A) Moral hazard B) Adverse selection C) Manager-stockholder conflict D) Manager-lender conflict 12) __________ occurs because firms have an incentive to become riskier after their loans are funded. A) Moral hazard B) Adverse selection C) Manager-stockholder conflict D) Manager-lender conflict 13) The stockholder-lender conflict generally becomes greater A) the smaller the firm. B) the larger the firm. C) the more the firm borrows from banks. D) the less the firm borrows from banks. 14) The manager-stockholder conflict generally becomes worse A) the smaller the firm. B) the larger the firm. C) the more the firm borrows from banks. D) the less the firm borrows from banks. 15) In privately held firms the manager-stockholder conflict is A) worse than in the larger firm. B) the same as it is in the larger firm. C) less severe than in the larger firm. D) there is no manager-stockholder conflict because the manager is the owner. 16) In closely held firms, the manager-stockholder conflict is A) worse than in the larger firm because there is no incentive for the individual stockholder to monitor managers. B) the same as in publicly held firms. C) less severe than in the larger firm because there is an incentive for the major stockholder to monitor managers. D) less pronounced than in large public companies, because the manager is the owner. 17) When the owners of a company hire full-time executives to make the day-to-day decisions, this __________ the __________ problem. A) alleviates; stockholder-lender B) alleviates; manager-stockholder C) exacerbates; stockholder-lender D) exacerbates; manager-stockholder 18) When there are many thousands of small stockholders in a company, for each the cost of monitoring manager performance is well __________ the benefits of doing so, which helps __________ the manager-stockholder problem. A) above; alleviates B) above; brings on C) below; alleviates D) below; brings on 19) The fewer the stockholders in a corporation the __________ likely they are to be motivated to monitor the corporation’s management, thus the __________ the severity of the manager-stockholder conflict. A) more; greater B) more; fewer C) less; greater D) less; fewer 20) Of the two conflicts, __________ get(s) more severe the larger the firm. A) the stockholder-lender conflict B) manager-stockholder conflict C) both D) neither

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