________ occurs when managers refuse to take on low-risk projects because too much of the value from the project would accrue to the creditors.

Question

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Underinvestment occurs when managers refuse to invest in low-risk projects because they fear that too much of the value from the project would accrue to the creditors rather than the shareholders. This is a common problem in firms that are heavily leveraged, as managers may be hesitant to take on new projects that could negatively impact the existing debt levels.

________ Occurs When Managers Refuse to Take on Low-Risk Projects