Which of the following statements is FALSE?

A.

According to the empire building hypothesis, leverage increases firm value because it commits the firm to making future interest payments, thereby reducing excess cash flows and wasteful investment by managers.

B.

Managers of large firms tend to earn higher salaries, and they may also have more prestige and garner greater publicity than managers of small firms. As a result, managers may expand (or fail to shut down) unprofitable divisions, pay too much for acquisitions, make unnecessary capital expenditures, or hire unnecessary employees.

C.

When a firm is highly levered, creditors themselves will closely monitor the actions of managers, providing an additional layer of management oversight.

D.

Leverage can reduce the degree of managerial entrenchment because managers are more likely to be fired when a firm faces financial distress.