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1)Why would a corporation that is subject to low levels of financial distress would face high agency costs
2) why a company with high level of financial distress would find it difficult to raise equity capital ?
3) what does it mean by perfect and efficient capital markets and imperfect capital markets ?
4) what does it mean by reducing volatility of returns and how risk management reduces agency costs ?A company in financial difficulties is more risky and therefore people are less likely to buy shares in it.
Perfect capital markets are markets where the share price accurately reflects the value of the company. If imperfect then the share price doesn’t accurately reflect the true value/
Reducing the volatility of returns means making things less risky. If less risky then the management doing what is more in line with the interests of shareholders meaning less agency costs.
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