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We examine the importance of stockholder}bondholder con#icts in capital-structure choice. Numerical techniques are used to compute the expected wealth transfer between stockholders and bondholders when a "rm adopts a new project. We characterize the set of positive NPV projects that stockholders prefer to ignore and the set of negative NPV projects that stockholders want to accept. The results illustrate how these distortions vary with "rm and project characteristics. We also estimate the impact of stockholder}bondholder con#icts on investment decisions for 23 di!erent "rms and examine 0304-405X/99/$ -see front matter 1999 Elsevier Science S.A. All rights reserved. PII: S 0 3 0 4 -4 0 5 X ( 9 9 ) 0 0 0 1 5 -X See Fama and Miller (1972), Jensen and Meckling (1976), Merton (1977), and Myers (1977. the extent to which stockholder-bondholder con#icts explain observed cross-sectional variation in capital structures.1999 Elsevier Science S.A. All rights reserved.JE¸classi,cation: G32; C15