It may be difficult to provide incentives for managers to work hard when the firm is not experiencing any financial distress One solution that capital structure theory provides for that problem is to increase the proportion of debt in the capital structure of the firm If a firm is currently finance...

It is unlikely that an additional 5 percent of debt ...

It may be difficult to provide incentives for managers to work hard when the firm is not

Question:

It may be difficult to provide incentives for managers to work hard when the firm is not experiencing any financial distress. One solution that theory provides for that problem is to increase the proportion of debt in the of the firm. If a firm is currently financed with 90 percent debt, will additional debt help to further reduce the agency costs between stockholders and managers?

Capital Structure
Capital structure refers to a company’s outstanding debt and equity. The capital structure is the particular combination of debt and equity used by a finance its overall operations and growth. Capital structure maximizes the market value of a...