Limited access

Upgrade to access all content for this subject

Suppose that managers do act in shareholders' interests, and the firm borrows money by issuing bonds. How might an agency conflict arise?

A

Bondholders will select too conservative directors to the board who will not maximize shareholder value by passing up riskier projects.

B

Shareholders and management choose too safe projects because they are indebted.

C

Bondholders do not know the quality of the projects and assets of the firm.

D

Shareholders and bondholders collude to underpay managers, thus exploiting them.

E

Shareholders and management choose riskier projects because shareholders only get the upside while bondholders risk losing their principal if the downside occurs.

Select an assignment template