underinvestment problem

Definition

Circumstance in which a company, or the shareholders of a company, choose not to invest in low-risk investments that would provide a safe cash flow for the benefit of holders of the company's debt, choosing instead to invest high-risk, higher-profit assets that increase their share value instead.

Use this term in a sentence

The underinvestment problem was because the people at our company preferred high returns and did not mind taking on some risk.

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There was an underinvestment problem that we had to deal with,but it was nothing that we could not handle and we knew we would take care of it.

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Due to the underinvestment problem, the company was forced to invest in a high-risk, high-profit asset to raise the value of their shares instead of the low-risk, lower profit investment that would have been more likely to result in actual cash flow for the company.

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