Examples of behaviours that create agency costs of debt include situations where the borrowing entity:

Question

Quizplus · Accepted Answer

Investing in high-risk projects can increase the likelihood of the borrowing entity defaulting on their debt payments, which would create agency costs for the lender. The lender may also require a higher interest rate to compensate for the increased risk. The other options do not necessarily create agency costs of debt.

Examples of Behaviours That Create Agency Costs of Debt Include