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?

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Definitions:

Omission Training

A method in behavioral psychology where a desirable outcome is removed following unwanted behavior, as a form of negative punishment.

Extinction

In behavioral psychology, the gradual decrease and eventual disappearance of a conditioned response when it is no longer reinforced.

Negative Reinforcement

A learning process where the removal of an unpleasant stimulus strengthens a behavior.

Long-Lasting Suppression

The prolonged inhibition or reduction of a response or activity.