Operating and financial constraints placed on a corporation by loan provision are ________.
A) agency costs to lenders
B) agency costs to a firm
C) necessary to regulate ownership of a firm
D) necessary to control the risk of a firm

Question

Quizplus · Accepted Answer

Loan provisions such as interest payments and debt covenants act as constraints on a corporation's financial resources and decision-making abilities. These restrictions are designed to protect the lender's investment and limit the firm's risk of defaulting on the loan, but they also can create agency costs to the firm by limiting its flexibility and potential profitability.

Operating and Financial Constraints Placed on a Corporation by Loan