On May 14, 2008, General Motors paid a dividend of $0.25 per share. During the same quarter, GM lost a staggering $15.5Bns or $27.33 per share. Several months later the company asked for billions of dollars of government aid and ultimately declared bankruptcy just over a year later, on June 1, 2009. What would your answer be if GM executives anticipated that there was a possibility of government bailout should the firm be forced to declare bankruptcy?

Asymmetries of information

Conflicts between shareholders and debtholders

Moral hazard