Describe two common element often included in bond covenants

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Jensen and Meckling (1976) also provide potentially important insights into the choice of Capital Structure. They discuss Agency Conflicts and the Costs associated with these them. Describe the Agency Conflicts between Corporate Managers and the Stockholders of the firm. Next, describe the Agency Conflicts between the Bondholders and Stockholders of a firm. Be sure to describe how the level of debt in capital structure will affect both types of agency conflicts. Explain likely differences in preferences about Payout Policies between the manager, the stockholders, and the bondholders. Describe how the trade-offs between the different classes of Agency Conflicts and Costs may produce an Optimal Capital Structure in the context of Jensen and Mecklings’ framework. Describe two common elements often included in bond covenants, and explain how these might decrease agency conflicts.

Reference no: EM131332481

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