Agency costs of debt are treated as financial distress costs because they typically intensify during periods of financial distress

Managers may be inclined to pursue value-destroying acquisitions to achieve a higher salary or fulfill their empire-building desires

In the context of the static trade-off theory, the optimal debt-to-equity ratio for a given firm will be higher when agency costs of equity are incorporated in the model

When faced with the opportunity to fully finance a new investment by purchasing additional equity, existing shareholders will likely decline if the total cost of the investment exceeds the expected rise in their collective residual claim

Raising capital using equity instead of debt should help to reduce a manager's temptation to waste corporate resources provided he or she has an equity stake in the firm