Which of the following statements concerning capital structures around the world is correct?
A)There have been no significant observed differences between the capital structures of U.S. corporations and their German and Japanese counterparts.
B)All countries use essentially the same international accounting conventions with respect to reporting assets on foreign companies' financial statements.
C)Differences among countries in both bankruptcy costs and equity reporting costs leads to the conclusion that U.S. firms should have more equity and less debt than firms in Japan and Germany.
D)Equity monitoring costs are higher in the United States than in Japan and Germany.
E)Debt monitoring costs are lower in the United States than in Japan and Germany.

Question

Quizplus · Accepted Answer

The statement that differences among countries in both bankruptcy costs and equity reporting costs leads to the conclusion that U.S. firms should have more equity and less debt than firms in Japan and Germany is correct. This is because in countries with high bankruptcy costs, such as the United States, firms may prefer to use more equity financing to reduce the risk of bankruptcy. Similarly, in countries with high equity reporting costs, such as Japan and Germany, firms may prefer to use more debt financing to avoid the costs of equity issuance.

Which of the Following Statements Concerning Capital Structures Around the World