Underinvestment problem
The mirror image of the asset substitution problem, wherein stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to the debtholders. |
Similar financial terms
Agency problemThe conflict of interest between principal (e.g. shareholders) and agent (e.g. managers) in which agents have an incentive to act in their own self-interest because they bear less than the total costs of their actions.
Replacement-chain problem
Idea that future replacement decisions must be taken into account in selecting among projects.
