Question
4. How does debt financing help reduce agency problems which arise when managers and shareholders have different objectives? Debt financing can help prevent managers from
4. How does debt financing help reduce agency problems which arise when managers and shareholders have different objectives?
Debt financing can help prevent managers from using excess cash on perquisites.
Debt financing may make managers too risk-averse, therefore causing underinvestment in some risky but positive NPV projects.
Debt financing can help prevent managers from using excess cash on non-value adding acquisitions.
Both A and C are correct.
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Principles Of Commodity Economics And Finance
Authors: Daniel P. Ahn
1st Edition
0262038374, 9780262038379
