Final answer:
It is false that heavy use of long-term financing always leads to lower financing costs; the decision between bank loans and bonds depends on firm size, capital needs, and other factors including market conditions.
Step-by-step explanation:
The statement that heavy use of long-term financing generally leads to lower financing costs is false. Whether firms use bank loans or issue bonds depends on various factors including the size of the firm and the amount of capital needed. Bank borrowing tends to be more customized and is often preferred by smaller firms since banks can closely monitor the firm's financial activity through deposits and withdrawals. Large firms, conversely, might opt for issuing bonds to raise significant capital for investments, paying off old bonds, or acquiring other companies. While it is commonly thought that bonds are for larger loans and banks for smaller ones, this is not a strict rule; financing choices depend on the firm's circumstances, creditworthiness, and market conditions. In any case, the cost of financing will also be influenced by interest rates, repayment periods, and the current economic environment, rather than just the source of the financing itself.