Inclusion of restrictions in a bond contract leads to
A)higher agency costs.
B)higher bankruptcy costs.
C)higher interest costs.
D)lower agency costs.

Question

Quizplus · Accepted Answer

Inclusion of restrictions in a bond contract, also known as covenants, helps to align the interests of the bondholders and the company's management, thereby reducing agency costs. These restrictions limit the actions of the borrowers, reducing the risk of adverse decisions that could harm bondholders.

Inclusion of Restrictions in a Bond Contract Leads to