Debt covenants can be designed to serve a signaling function by assuring a steady flow of information from borrower to lender.

Name: Debt covenants can be designed to serve a signaling function by assuring a steady flow of information from borrower to lender.
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Debt covenants can serve as a signaling function by requiring the borrower to regularly report financial information to the lender, which can help build trust and reduce information asymmetry between the two parties.

Debt Covenants Can Be Designed to Serve a Signaling Function