Shareholders can take actions that are at variance with the interest of corporate

lenders such as banks and insurance companies. To reduce the likelihood of such

actions, lending agreements typically will include loan covenants, in some cases these

Covenants are written on financial statement based variables.

(a) Give examples of actions shareholders can take are at variance with interests of

corporate lenders (Assume the management and shareholders are the same party).

(b) Give examples of actions management can take that are at variance with interest

of shareholders.

(c) What factors or mechanism might serve to reduce potential conflict between the

following stakeholders?

( Shareholders and corporate lenders and ;

(ii) Management and shareholders