Question

What is the major source of financing investments in corporate America? Has there been more debt or equity issuance overall in recent years?

Answer 1

Among several sources of financing the investments in corporate America are equity issue, debt issue and venture capital. However, the first two methods are the most widely used ones. Equity issue has the advantage of being a cheap source of funding, but it also dilutes control of the firm. Debt issue is preferred as it comes with tax benefits and does not lead to any change in ownership pattern. However, it increases the riskiness of the firm and may lead to higher cost of capital. In the recent years, there have been more emphasis on debt issues as it is cheaper source than floating an equity issue, which is tightly regulated and hence is more time consuming and comparatively expensive.