Which firms are most likely to use bank financing rather than to issue bonds or stocks to finance their activities? Why?
Financing refers to the mode of providing money that would be used in the running of business operations. Financing is important as it helps businesses to buy the assets that they would not be able to afford with their finances. Financing can be divided into two classes, debt and equity financing.
Answer and Explanation:
The firms that would most likely use bank financing are the small firms that have not gained popularity. This is because it would be difficult for an investor to get sufficient information about the companies making it hard for the companies to sell their securities in the financial market. Since the firms are small, they would also be less attractive to the investors, making it hard for them to invest in the firms. Therefore, the banks that collect data about the firms would be the only option for them to acquire their financing.
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from Corporate Finance: Help & ReviewChapter 8 / Lesson 7