Stockholders have an incentive to take riskier projects than
bondholders do. Other conflicts of interest can stem from the fact
that bonds often have a defined term, or maturity, after which the
bond is redeemed, whereas stocks may be outstanding indefinitely
but can also be sold at any point.
Bondholders may put contracts in place prohibiting management
from taking on very risky projects or may raise the interest rate
demanded, increasing the cost of capital for the company.
Conversely, shareholder preferences–for example for riskier growth
strategies –can adversely impact bondholders.