But they also come with costs constrain managements

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But they also come with costs: Constrain management’s decisions and reduce flexibility Monitoring the compliance is expensive Used when their cost is less than the agency costs they prevent. Having stockholders (and managers) hold debt They act more like owners of the total firm cash flow and thus seek to maximize total firm value. Security design (e.g., issuing convertible debt) Board participation (for large lenders) Reputational concerns (at least for some frequent borrowers). Lecture 6: Theories of Capital Structure
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