Why are corporations more likely to raise funds externally by debt instead of equity?
A) moral hazard is less of a problem with debt contracts
B) transactions costs tend to be higher in the stock market than bond market
C) to avoid paying dividends
D) interest rates tend to be lower than dividend rates

Question

Quizplus · Accepted Answer

Debt contracts typically involve less moral hazard because they require fixed payments and have priority over equity in case of liquidation, making them less risky for lenders.

Why Are Corporations More Likely to Raise Funds Externally by Debt