When using equity financing, firms run the risk of ________.
A)losing a controlling interest to shareholders
B)acquiring capital through the sale of shares
C)incurring an unmanageable amount of debt
D)falling victim to currency exchange rates

Question

Quizplus · Accepted Answer

When using equity financing, firms may sell shares to investors in exchange for capital, which grants the shareholders ownership rights and a claim to a portion of the profits. As a result, the firm may lose a controlling interest to shareholders, which could lead to a loss of control over strategic decision-making processes. This risk may be heightened if the firm sells a significant portion of its shares, as the shareholders may have enough voting power to influence key decisions.

When Using Equity Financing, Firms Run the Risk of ________