Debt financing may make managers too risk-averse

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How does debt financing help increase agency problems which arise when managers and shareholders have different objectives?

Debt financing can help prevent managers from using excess cash on perquisites.

Debt financing may make managers too risk-averse, therefore causing "underinvestment" in some risky but positive NPV projects.

Debt financing can help prevent managers from using excess cash on non-value adding acquisitions.

Both A and C are correct.

Reference no: EM133071747

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