Due to Its Secondary Position Relative to Equity, Suppliers of Debt

question 17

True/False

Due to its secondary position relative to equity, suppliers of debt capital face greater risk and therefore must be compensated with higher expected returns than suppliers of equity capital.

---

Definitions:

Efficiency Wages

Efficiency wages refer to the concept where employers pay higher than the market-clearing wage to increase productivity, reduce turnover, and encourage loyalty among employees.

Labor Force Turnover

The rate at which employees leave a company and are replaced by new employees.

Labor Productivity

Average product of labor for an entire industry or for the economy as a whole.

No Shirking Constraint

A principle in labor economics that suggests wages are set to deter employees from shirking or underperforming.