Conflict of Interest Between Stockholders and Bondholders, Income Distribution and Financial Constraints

According to the agency theory, a firm is nexus of diversified stakeholders. Each of them contracts to others to protect his interests. Stockholders and bondholders are two main stakeholders in all firms. This research investigates the effect of conflict between these two groups on income distribution and financial constraints. We measured conflicts of interest following Ahmed et al. (2002). Whetted and Wu (2006) index (WW) is used to compute degree of financial constraints by means of Iranian financial data. We used correlation coefficients to test hypothesis and found conflicts of interest between stockholders and bondholders have a negative impact on income distribution. Furthermore, our results show that the increase in conflicts is not correlated with financial constraints.