Under the trade-off theory,how will a government loan guarantee impact financing?

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According to the trade-off theory, firms aim to find the optimal mix of debt and equity financing to maximize their value. A government loan guarantee reduces the firm's risk and increases the likelihood of receiving a loan from lenders. As a result, the firm can prefer to issue debt to take advantage of the lower cost of debt financing. This is because the loan guarantee lowers the interest rate required by lenders, making debt financing a more attractive option. Therefore, firms tend to prefer debt financing when a loan guarantee is available.

Under the Trade-Off Theory,how Will a Government Loan Guarantee Impact