Which of the following factors favor the issuance of debt in the financing decision?
I.Market signaling
II.Distress costs
III.Management incentives
IV.Financial flexibility

Question

Quizplus · Accepted Answer

Market signaling and management incentives are factors that can favor the issuance of debt. Market signaling refers to the positive signal sent to the market about a company's prospects by issuing debt, suggesting confidence in future cash flows. Management incentives can align with debt issuance, as debt can discipline management to focus on efficiency and profitability to meet debt obligations. Distress costs and financial flexibility generally argue against the issuance of debt, as they represent the costs of financial distress and the potential loss of flexibility in financial decision-making, respectively.

Which of the Following Factors Favor the Issuance of Debt