Debt can be used to constrain managers because

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Reference no: EM13911628

Debt can be used to constrain managers because it:

Provides additional cash flow for their use.

Precommits a firm's excess cash flow to debt servicing.

Allows the management to issue more shares.

Eliminates a CEO's tendency to acquire other firms without a sound economic rationale.

Makes a CEO more likely to accept positive NPV projects.

Reference no: EM13911628

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