Reducing Agency Costs in High-Leverage Situations

ABC Corporation is considering a new capital structure strategy to minimize agency costs arising from the conflict of interest between its management and shareholders. The current debt-to-equity ratio stands at 0.5, and management is contemplating increasing the debt level to 0.8. However, some shareholders are concerned that higher leverage may lead to increased agency costs due to potential overinvestment in riskier projects.

To address this issue, the board of directors has examined three potential options for mitigating agency costs while balancing growth and shareholder interests. Which of the following options would most effectively reduce agency costs associated with the firm's increased leverage?