Issue costs for equity are higher than those for debt for all of the following reasons except:

Question

Quizplus · Accepted Answer

Actually, equity issues tend to have higher economies of scale because the larger the issue size, the lower the cost per share due to fixed costs being spread over a larger amount of shares. A is correct as equity issues involve more administrative costs such as legal fees and SEC filings. B is correct because equity issues are inherently riskier as the return to equity holders is dependent on the success of the company, while bondholders have a set interest rate they will receive regardless of the company's success. C is correct because equity issues typically require more time to sell as potential investors may require more due diligence and analysis before investing in the company.

Issue Costs for Equity Are Higher Than Those for Debt