Asset substitution problem

Arises when the stockholders substitute riskier assets for the firm's existing assets and expropriate value from the debtholders.

Asset Substitution

A company's exchange of lower-risk investments for higher-risk investments. Firms may use asset substitution as a form of financing, or as a move to please shareholders. It can be detrimental to the company's bondholders as it increases the possibility of default without any corresponding benefit because bonds have a fixed interest rate. On the other hand, asset substitution can benefit shareholders as it carries the possibility of higher returns.

单词	asset substitution problem
释义	Asset substitution problem Asset substitution problem Arises when the stockholders substitute riskier assets for the firm's existing assets and expropriate value from the debtholders. Asset Substitution A company's exchange of lower-risk investments for higher-risk investments. Firms may use asset substitution as a form of financing, or as a move to please shareholders. It can be detrimental to the company's bondholders as it increases the possibility of default without any corresponding benefit because bonds have a fixed interest rate. On the other hand, asset substitution can benefit shareholders as it carries the possibility of higher returns.
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