An indirect cost of bankruptcy is the effect that a potential bankruptcy has on the firm$$s decisions. The general result is that:

An indirect cost of bankruptcy is the effect that a potential bankruptcy has on the firm$$s decisions. The general result is that:

stockholders expropriate value from bondholders by selecting high$-$risk projects.

the firm will select only all$-$equity financed projects.

the firm will rank all projects and select the project which results in the highest expected firm value.

the firm will always select the lowest$-$risk project available.

bondholders expropriate value from stockholders by selecting high$-$risk projects.