Answer: Increase internally financed cash dividends

## Explanation **Increasing internally financed cash dividends** is the most effective way to constrain management's ability to overinvest in negative NPV projects because: - **Cash dividends** directly reduce the cash available to management for investment - **Internally financed** means using retained earnings rather than external financing - This forces management to be more disciplined about capital allocation decisions **Other options:** - **Stock dividends** don't reduce cash available to management - **EBITDA coverage requirements** relate to debt capacity, not directly constraining investment decisions This approach aligns with the **free cash flow theory** where returning cash to shareholders reduces agency costs.

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