The so-called moral-hazard problem in financial management refers to the fact that managers will tend to take on more risk if they know that they are somehow insured against some or all of their losses. (A) True (B) False
Business · High School · Tue Nov 03 2020
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That statement is true. The moral hazard problem in financial management arises from the idea that individuals or entities may take on more risks if they believe they are protected or insured against potential losses. When managers or individuals feel insulated from the full consequences of their actions due to insurance or other forms of protection, they might engage in riskier behavior since they won't bear the full cost of failure. This phenomenon is known as moral hazard.