Briefly explain how shareholders’ control rights differ from the influence that lenders gain through debt covenants.

Expert Solution

Generally Shareholders and Lenders have different levels of cash-flow and control rights.

Lenders are first to claim the cash flow and thus have complete cash flow rights, and very minimal control rights whereas in case of Shareholders, they have higher control rights and thus have complete control of the firm, but have lesser cash flow rights, eg. a bank (Lender) is only concerned with the fixed regular payments (cash flow) which it receives and is not concerned with the internal matters of the firm i.e. control rights like management decisions, voting board of directors etc.

Debt covenants are agreements between the company and its Lenders that the company will operate within the set rules created by lenders. But when the company is in trouble and defaults or violates debt covenants the lender's control rights gets elevated and lenders can put more restrictions on company e.g. dividend payout restrictions.

jeff jeffy answered 1 year ago

Briefly explain how shareholders’ control rights differ from the influence that lenders gain through debt covenants

Explain in short what rights the shareholders possess. Are these rights sufficient to ensure control over...

Explain in short what rights the shareholders possess. Are these rights sufficient to ensure control over the corporation?

Discuss how the reproductive rights of minors differ from those of adults.

a) Briefly explain accountability from the perspective of a finance industry. (b) How does accountability differ...

a) Briefly explain accountability from the perspective of a finance industry. (b) How does accountability differ from the concept of governance? (a) Identify and briefly explain the two main categories in financial contracting. (b) Further explain financial contracting in finance services industry. (e) Identify the THREE (3) main sections that arise ethical issues in financial services industry (f) Briefly explain conflict of interest from the perspective of financial services industry. (g) There are two main categories of ethical issues in...

How does Libertarianism differ from Equal Rights arguments in the theory of Ethics and Economics?

Explain how countries gain from international trade.

1. Briefly explain ‘maximizing shareholders’ wealth’ and how this can be achieved in a case of...

1. Briefly explain ‘maximizing shareholders’ wealth’ and how this can be achieved in a case of public listed firms.

Briefly explain how the expected and observed cell counts are obtained. How do they influence the...

Briefly explain how the expected and observed cell counts are obtained. How do they influence the significance of the hypothesis test?

Explain how the three weighting methods (Market, Target, Book) differ and influence the WACC. Which is...

Explain how the three weighting methods (Market, Target, Book) differ and influence the WACC. Which is preferred? Justify why your choice is preferred?

How does vasomotor tone differ from vagal tone; how does each one influence MAP?

Question