Firms that borrow excessively face which one of the following possibilities?
A)The impact of differing tax rates on corporate versus personal tax
B)The possibility of financial distress
C)The existence of information asymmetry
D)All of the above
E)None of the above

Question

Quizplus · Accepted Answer

Firms that borrow excessively face the risk of financial distress, which can lead to bankruptcy or default on loan payments. Excessive borrowing increases the firm's leverage, making it more susceptible to external shocks and changes in interest rates. As a result, firms that borrow too much may find it difficult to repay their debts, which can negatively impact their credit ratings and investors' confidence. The other options, A and C, are not necessarily consequences of excessive borrowing.

Firms That Borrow Excessively Face Which One of the Following