The Current Academic Consensus Regarding the Relevance of Bankruptcy Costs

question 23

Multiple Choice

The current academic consensus regarding the relevance of bankruptcy costs on capital structure decisions is that

• A)expected bankruptcy costs for large, healthy firms are small and probably can be ignored when determining these firms' capital structures.
• B)the relevance of bankruptcy costs to a firm's capital structure decision is directly proportional to the number of times the firm has filed for bankruptcy in the past.
• C)only the direct costs associated with bankruptcy need be considered since the indirect costs are minor by comparison and are difficult to quantify.
• D)None of the above is true.

---

Definitions:

Disruption

An innovation or event that significantly alters the way that industries, businesses, or markets operate.

Brand Position

Represents the unique space a brand occupies in the minds of consumers, distinguishing it from its competitors based on attributes, benefits, and perceptions.

Radical Innovation

Involves breakthrough developments or products that significantly alter the dynamics of industry, often creating new markets or reshaping existing ones.

Cultural Storytelling

The use of narratives and stories to convey cultural values, beliefs, and histories, often to educate or entertain, while strengthening communal bonds.