A Sizeable Proportion of Corporate Takeovers Are Financed with So-Called

question 9

Essay

A sizeable proportion of corporate takeovers are financed with so-called junk bonds. Such bonds offer bondholders higher rates of return than most other bonds traded because there are no hard assets as collateral to reduce the risk for bondholders in case of a default. The sellers of the bonds hope to be able to meet their obligations to pay these high rates of return to bondholders through the expected increase in profits of the company(ies) just taken over. How do the monitoring problem and the existence of lazy monopolists contribute to the market for junk bonds?

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Definitions:

Directive Management Style

A leadership approach where decisions and processes are predominantly controlled by the manager or leader.

Human Factors Psychology

The study of how psychological factors affect interactions between humans and systems, aiming to optimize human well-being and overall system performance.

Stating Implementation Intentions

Involves specifying in advance how one intends to behave in particular situations to achieve set goals.

Structured Interviews

A systematic method of interviewing where the interviewer asks a set of predetermined questions in the same order to all interviewees.