Identify the correct statement pertaining to financial structures.

Question

Quizplus · Accepted Answer

Financial structure refers to the way a business is financed, and it usually includes a mix of debt and equity. This statement correctly describes financial structure.

Option A is incorrect. The financial structures of firms can vary significantly across countries depending on factors such as legal and regulatory environments, financial markets, and cultural norms.

Option C is partly correct, but it oversimplifies the relationship between tax rates and financial structure. High tax rates on interest income may make equity financing relatively more attractive, but other factors such as risk, availability of capital, and investor preferences also play a role in determining a firm's financial structure.

Option D is incorrect. Although tax structure can influence financial structure, it is not the only or even the most important factor. Other factors, such as institutional frameworks and economic conditions, also play a crucial role. Additionally, country differences in financial structure can be influenced by a range of factors beyond tax structure.

Identify the Correct Statement Pertaining to Financial Structures