Underinvestment problem

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Underinvestment problem is a type of agency problem in which high debt can cause managers to forgo positive NPV projects unless they are extremely safe.


Definitions

According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),

Underinvestment problem. A type of agency problem in which high debt can cause managers to forgo positive NPV projects unless they are extremely safe.

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