If we consider only agency costs associated with the issuance of debt,then this implies that the firm should move toward 100 percent debt financing.

Question

Quizplus · Accepted Answer

While increasing debt financing may reduce some agency costs associated with equity, it may also increase the agency costs associated with debt, such as the risk of default and the need to monitor the firm's financial situation. A optimal capital structure strikes a balance between the benefits and costs of both debt and equity financing.

If We Consider Only Agency Costs Associated with the Issuance