Final answer:
Debt financing is the borrowing of money through loans or bonds, allowing a firm to retain control over its operations without being subject to shareholders.
Step-by-step explanation:
Debt financing involves borrowing money through mechanisms like bank loans or bond issuance, obligating the borrowing firm to adhere to scheduled interest payments throughout the loan's lifespan, irrespective of its income levels. The primary advantage of debt financing lies in allowing a firm to retain full operational control without being accountable to shareholders, a situation that would arise if the company opted for equity financing by issuing stock.
In contrast to debt financing, issuing stock involves selling ownership stakes to the public, thereby establishing responsibility to a board of directors and shareholders. While debt financing provides independence, it introduces the obligation of meeting interest payments; equity financing entails sharing ownership but offers relief from scheduled interest obligations, exemplifying the trade-offs companies consider when choosing between these two methods to raise capital.