Which of the following statements about debt ratios is (are)supported by the empirical evidence?
A)Firms with high accounting profits and more tangible assets tend to have lower debt ratios, all else equal.
B)Firms with high corporate income tax rates tend to issue more debt, but often have relatively low debt ratios.
C)Firms that generate higher stock returns use more debt and have higher debt ratios.
D)Both A and B are supported by the empirical evidence.

Question

Quizplus · Accepted Answer

Empirical evidence supports that firms with high accounting profits and more tangible assets tend to have lower debt ratios because they can finance their operations through retained earnings and use tangible assets as collateral for lower-cost debt if needed. Additionally, firms with high corporate income tax rates may issue more debt to take advantage of the tax shield provided by interest deductions, but this does not necessarily translate to higher overall debt ratios, as these firms often manage their leverage to optimize tax benefits while minimizing bankruptcy risks.

Which of the Following Statements About Debt Ratios Is (Are)supported