Question

Explain how the following factor affect the choice of capital structure of a company:

Control 

Answer 1

1. The desire to maintain control over the business influences the capital structure decision.
2. The issue of equity shares has the potential to reduce the control of current shareholders by reducing ownership and voting rights.
3. On the other hand, since lenders do not have voting rights, the company can obtain finance through debt raising without giving up ownership.
4. As a result, businesses that are worried about keeping control frequently favor debt over equity.