Firms tend to issue new equity rather than new debt if
A)their stock returns are positive.
B)their accounting financial statements present a positive picture.
C)they have high tax obligations.
D)all of the above.

Question

Quizplus · Accepted Answer

Firms tend to issue new equity rather than new debt when their stock returns are positive because issuing new equity can signal to investors that the company is growing and can lead to an increase in the stock price. Additionally, issuing new equity does not increase the company's debt burden or interest payments. Firms tend to issue new equity rather than new debt if their stock returns are positive, as this suggests that investors have confidence in the company's future and are likely to be more willing to purchase new shares. A and B are both plausible reasons, but C is not relevant to the decision between issuing new equity or new debt.

Firms Tend to Issue New Equity Rather Than New Debt