Final answer:
Equity financing is a financial tool that causes higher favorable results when a company is doing well, but has the opposite effect under negative conditions.
Step-by-step explanation:
The financial tool that causes higher favorable results when a company is doing well, but has the opposite effect under negative conditions, is equity financing. Equity financing involves raising funds by selling ownership shares in the company, typically through stocks or venture capital.When a company is doing well, investors are more willing to invest in the company's equity because they expect a higher return on their investment. However, during negative conditions or economic downturns, investors become more risk-averse and less willing to buy equity shares, resulting in a decrease in the company's value.
For example, during the technology boom of the late 1990s, many technology companies raised significant funds through equity financing because investors had high expectations of future profits. Conversely, during the Great Recession of 2008 and 2009, companies had difficulty raising equity capital as investors were more cautious and less optimistic about future returns.