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Considering That Issuing Debt Is Cheaper Than Issuing Equity; That

question 35

Essay

Considering that issuing debt is cheaper than issuing equity; that debt is a less expensive form of
financing; and that debt issues tend to be larger in size, why do firms have secondary equity
offerings? Why not just issue debt securities once the IPO is complete?


Definitions:

Rationalization

The process of attempting to explain or justify behavior or attitudes with logical, plausible reasons, even if these are not the real reasons.

Denial

The refusal to accept the truth of a fact or reality, often as a defense mechanism against psychological discomfort.

Sensitivity

The ability or capacity to perceive, understand, and respond appropriately to the emotions, thoughts, or experiences of others.

Effectiveness

The degree to which something is successful in producing a desired result; efficiency.

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