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Explain the conflict between stockholders and bondholders.

Explain the conflict between stockholders and bondholders.

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Answer #1

Conflict between bondholders and stockholders

Bondholders :

1. Company to take less risky decisions even if the payoff is much higher

2. Company much focus on solvency above all.

3. Ensure EBIDTA being significantly higher

4. Ensure sufficient DSCR to cover the interest cost and principal repayment

Stockholders:

1. Focus on long term wealth maximization

2. Higher cost of funds, hence their expectations are higher

3. Can be more for riskier investments and couese of actions

4. While dividends are expectations for some , they predominantly focus on wealth maximization accompanying capital appreciation.

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