Dividends reduce the value of lender claims, and this is why bondholders often limit a firm's ability to distribute cash to equity holders.

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Dividends are cash payments made by a company to its shareholders. When a company pays out dividends, it reduces its available cash, which could otherwise be used to pay off debts or fulfill other financial obligations. This reduction in cash flow affects the value of lender claims, as it decreases the amount of money that the company has available to repay its debts. Bondholders often limit a firm's ability to distribute cash to equity holders, as they want to protect their own interests by ensuring that the company has enough cash available to pay off its debts.

Dividends Reduce the Value of Lender Claims, and This Is