Empirical studies of the capital structure of corporations in the United States have generally agreed that leverage increases with each of the following EXCEPT
A) fixed assets
B) advertising and research/development expenditures
C) nondebt tax shields
D) growth opportunities
E) firm size

Question

Quizplus · Accepted Answer

Empirical studies have found that advertising and research/development expenditures are negatively correlated with leverage, meaning that companies that spend more on advertising and R&D tend to have less debt. This is likely because these expenditures signal innovation and growth potential, making the company less risky to lenders and more able to generate future cash flows. Therefore, as companies spend more on advertising and R&D, their leverage tends to decrease rather than increase.

Empirical Studies of the Capital Structure of Corporations in the United