Asset substitution problem

Definition:

Arises when the stockholders substitute riskier assets for the firm's existing assets and expropriate value from the debtholders.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Gross profit margin

Gross profit divided by sales, which is equal to each sales dollar left over after paying for the cost of goods sold.

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