Which statement is not true in relation to asset substitution as described in the shareholders - debtholders agency relationship a . Managers have incentives to accept debt finance and invest in higher risk assets to increase the potential returns to shareholders b . Lenders are generally risk preferers C . When investments in high - risk asset financial distress shareholders are liable only for the amounts unpaid on their shares d . Lenders price debt is based on the expectations that firms will not invest in assets that have higher risk than that which is acceptable to the lenders