Equity Contracts Account for a Small Fraction of External Funds

Multiple Choice

Equity contracts account for a small fraction of external funds raised by Canadian businesses because ________.

A) costly state verification makes the equity contract less desirable than the debt contract
B) of the reduced scope for moral hazard problems under equity contracts, as compared to debt contracts
C) equity contracts do not permit borrowing firms to raise additional funds by issuing debt
D) there is no moral hazard problem when using a debt contract