Question

Some people--including the former chairman of the Federal Reserve Board of Governors (Ben Bernanke) --have argued that one advantage of corporate debt from the stockholders' standpoint is that the existence of debt forces managers to focus on cash flow and to refrain from spending too much of the firm's money on private plane and other "perks." This is one of the factors that led to the rise of LBOs and private equity firms. True or false?

Answer 1

The given statement is True.

Explanation:

LBO, or Leveraged Buy Out, is defined as being a financial transaction in which, a company is purchased utilizing a combination of debt and other equity while keeping the company’s cash flow as the collateral to secure and repay the borrowed money.

It makes investments in the private equity of a start-up. This all rose from the ideas put forward by people like Ben Bernanke, which suggest the presence of such firms that can help you better your investments rather than using a little too much of your firms money up in the form of private planes or any other such perks,which makes the answer for the question true.  Private equity firms on the other hand are a company that manages the investment and provides backing in the form of finance.