Creditors and shareholders often support different corporate decisions. This chapter considers the asset substitution, or risk shifting, problem: the shareholders’ tendency to invest in very risky projects. Some examples are discussed including the failure of many levereged buyouts of 1980s and the policies of some companies during the last financial crisis. Implications of the assets substitution problem for capital structure policies are discussed including the usage of convertible securities, bank loans, and debt covenants, the shareholders’ reluctance to liquidate financially distressed companies and why highly levereged firms may compete aggressively in oligopolistic markets. The chapter then presents a closely related issue of credit rationing. It explains why banks will not necessarily increase interest rates in order to equalize demand and supply for loans and why small companies have limited access to credit.