c) Some economists argue that capital structure decisions are affected by the costs of financial distress that firms face. What are these costs exactly and why are they important to firms? Describe the different types of financial distress costs and explain how they may determine whether a firm raises equity or debt capital. In your answer, you should also refer to academic studies that provide estimates of the magnitude of distress costs. [Word limit: 350 words]

c) Some economists argue that capital structure decisions are affected by the costs of financial distress that firms face. What are these costs exactly and why are they important to firms? Describe the different types of financial distress costs and explain how they may determine whether a firm raises equity or debt capital. In your answer, you should also refer to academic studies that provide estimates of the magnitude of distress costs. [Word limit: 350 words]

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter17: Financial Markets

Section: Chapter Questions

Problem 16RQ: What is a capital gain?

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