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sir john, can u explain me the difference between agency costs of equity and debt , i mean how can they be different?
Agency costs do not relate directly to debt or to equity, they are the costs of having the company run by agents i.e. the directors, and the fact that the interests of directors may not always coincide with the interests of shareholders.
Oh right but sir what is that “agency effects on capital structures ” thats given in books and notes im reading of lsbf
Thanks alot
Surely LSBF explain in the books that you are reading?!
The main relevance of agency costs to capital structure is that management can have an incentive to accept risky projects because if the project is successful then shareholders get the benefit whereas if it is not successful then debt lenders could suffer. This can increase the risk of the business as a while.
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