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Agency Problems--FINAN 450 (#6)

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cmarquardt94's version from 2017-01-23 15:54

Section

Question Answer
There are conflicts between stockholders and....?1) managers 2) bondholders
All (_____) have agency costs!publicly traded corporations
What is a potential negative with managers?Managers may take actions for their own benefit at the expense of shareholder value
Ways to handle the "manager" problem?[threat of firing], [threat of takeover], [positive compensation]
What is the "Agency Problem"/"Primary Concern" with bondholders?the primary concern is stock holders encouraging increasingly risky projects at the expense of bondholders. Both need to work together!
Protective Covenants?rules to maintain a consistent level of risk for bondholders
memorize