Underinvestment Problem

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Underinvestment problem

The mirror image of the asset substitution problem, in that stockholders refuse to invest in low-risk assets to avoid shifting wealth from themselves to debtholders.

A situation in which a company refuses to make low-risk investments to the detriment of bondholders. The company does this in order to placate its shareholders, who seek a higher return, but this exposes bondholders to more risk without the promise of a higher return. That is, the high-risk investments or projects may not perform as expected, resulting in bankruptcy, but the nature of bonds does not allow them to participate in any extra rewards from these investments or projects. The underinvestment problem may encourage bondholders to sell their bonds. See also: Asset substitution problem.

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Conflict between bondholders and stockholders			On the other hand, an underinvestment problem is expected to be more pronounced for high-growth firms. Are debt and incentive compensation substitutes in controlling the ... by Zhang, Yilei / Financial Management The implication is that, when income and lobbying power are highly concentrated, the stock of infrastructure may be close to optimal under the open regime but far below optimal under the closed regime; that is, trade rectifies the underinvestment problem associated with a high degree of income concentration. Openness, lobbying, and provision of infrastructure by Chakravorty, Ujjayant; Mazumdar, Joy / Southern Economic Journal Any future replacement for the ITS would likely experience the same underinvestment problem. Modernizing national equity markets? by Clarke, Jonathan / Regulation			Under the Table Under-Allowance Underage Underapplied Overhead Underbanked Underbooked Undercapitalized Undercharge Underclass Undercolor Removal Underconsumption underdepreciation Underemployed Underemployment Underfunded Underfunded Pension Plan Underground Storage Insurance underground storage tank Underhand underimprovement Underinsurance Underinsured Underinsured Motorist Coverage Limits Trigger Underinsured Motorist Coverage Modified Limits Trigger Underinsured Motorist Endorsement Underinvestment Problem Underinvoicing Underleveraged Underlying Underlying Asset Underlying Debt Underlying Futures Contract Underlying Index Underlying Inflation Underlying Instrument Underlying Investment underlying mortgage Underlying Price Underlying Retention Underlying Security Underlying Service Underlying Value Undermargined Undermargined Account Underpayment Underpayment Penalty Underperform Underperforming Asset Underpricing undersecured loan Undersell			Underhill-Jericho Fire Department underhole Underhonest Underhood Bussed Electrical Center underhung underhung crane underimmunization underimprovement Underinclusiveness underinsurance underinsurance underinsurance underinsure underinsure underinsure underinsured underinsured underinsured underinsured underinsured Underinsured Motorist Coverage Limits Trigger Underinsured Motorist Coverage Limits Triggers Underinsured Motorist Coverage Modified Limits Trigger Underinsured Motorist Coverage Modified Limits Triggers Underinsured Motorist Endorsement Underinsured Motorist Endorsements underinsures underinsuring underinvest underinvestment Underinvestment Problem Underinvestment Problems Underinvoicing underivative underived underived Underjaw underjet Underjoin Underkeep Underkeeper underkill Underkind Underkingdom underlabeling Underlaborer underlaid underlaid underlain underlain underlain underlap Underlapping Toe Underlapping Toe underlay underlay underlay underlay shaft Underlayer underlaying underlaying

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