Equity capital is considered less risky because dividend payments are always at the company's discretion and are not legally enforceable until declared.

Question

Quizplus · Accepted Answer

Equity investors are not entitled to receive dividend payments and companies have no legal obligation to make them. Therefore, equity capital is considered less risky because there is no contractual obligation to pay dividends or return the initial investment, unlike with debt capital.

Equity Capital Is Considered Less Risky Because Dividend Payments Are