AGENCY COST OF DEBT

A problem emerging from the conflict of interest whenever there is separation of management from the owners (stockholders) on a company that is already publicly owned. The corporate governance mechanisms, issuance of debt and board of directors as example, are exercised in an attempt to decrease the conflict of interest. But the introduction of debt in the situation stirs the potential for an another conflict of interest because an another party with a different, which is the lenders (bondholders), is added to the equation.