Which of the following statements concerning differences in capital structures and financing alternatives around the world is correct?
A)In most countries, the capital gains taxes paid by investors are substantially higher than in the United States.
B)In many countries, the costs to monitor companies' debt are lower than in the United States because foreign firms use substantially greater amounts of bank loans to finance assets than do U.S. companies.
C)Bank loans to businesses are of little amounts in foreign countries.
D)In most countries, neither the interest nor the dividends firms pay are tax deductible.
E)The threat of potential bankruptcy is high in firms that are primarily financed with equity than in firms that are financed with bank loans.

Question

Quizplus · Accepted Answer

Many foreign firms rely on bank loans to finance their assets, which can be monitored at lower costs compared to U.S. companies that rely more heavily on debt securities. This is because banks have an informational advantage over debt markets in assessing the creditworthiness of borrowers. The other statements are incorrect: A) Capital gains taxes are often lower in foreign countries than in the U.S.  C) Bank loans are significant sources of funding for businesses in many foreign countries. D) In many countries, both interest and dividends paid by firms to investors are tax deductible. E) Equity financing introduces higher bankruptcy risk as it does not offer the same level of protection to investors as lending agreements.

Which of the Following Statements Concerning Differences in Capital Structures