Agency theory reading report

Stockholders verses Bondholders

Conflicts can also occur between the stockholders and bondholders. The bondholders receive fixed payments of interest even if the business does very well, but the stockholders will be paid better dividends because they depend on the performance of the business.

One conflict arises from the risky investment that promises high returns.

Bondholders protect themselves by the use of covenants that restricts use of additional debts and other actions that may increase the risk of the bondholders. These actions would reduce the exposure of the bondholders to the actions of the managers and the stockholders.

FORMS OF BUSINESS

There are four types of business organizations:

1. 
   Sole proprietorship
   
2.