Question

When a corporation finances expansion with debt, there is usually no influence on management if they use equity financing by selling stock the common stockholders have voting rights.

A) True
B) False

Answer 1

The statement is true; financing through debt does not affect management control, whereas equity financing by selling stock grants shareholders voting rights and potential management influence.

Step-by-step explanation:

The statement provided by the student is True. When a corporation finances expansion using debt, it implies borrowing funds through means such as bank loans or issuing bonds. This form of financing does not typically afford lenders or bondholders any control over the management of the company. They are only entitled to repayment of their loan plus interest, without getting any voting rights. In contrast, when a company raises funds by selling stock, or equity financing, it is essentially selling ownership stakes. The common stockholders who purchase these shares gain voting rights and could influence the direction of the company through their votes at shareholders' meetings and the election of a board of directors.