Transaction or contracting costs represent the explicit or implicit costs of facilitating exchanges. For example, firms cannot costlessly issue debt and repurchased equity, or negotiate bank loans. Loan covenants may restrict management’s discretion in some decision, or even limit returns to shareholders. Covenants also may increase firm expenses by requiring audits or the periodic review of financial statements by the lenders. Real-world firms must pay several different categories of transaction costs such as flotation costs, bankruptcy costs, agency costs, and information asymmetry.