Terms Beginning With 'u'

Underinvestment Problem

  • January 22, 2020
  • Team Kalkine

An underinvestment problem refers to a situation in which a company, or its stockholders, decides not to invest in low-risk investments that would deliver safe cash flow for the advantage of shareholders of the company's debt. The company, instead, chooses to invest in high-risk assets that leave the bondholder exposed to high risk without a promise of a higher return.

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