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How does asset tangibility affect a company's capital structure?
Suggested Answer: B
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Asset tangibility directly affects a firm's ability to obtain debt financing because lenders prefer collateral-backed loans. Firms with higher tangible assets face lower borrowing constraints and typically carry higher leverage. This relationship is well documented in capital structure research and financial management textbooks. Tangible assets reduce credit risk and expected losses in default, allowing firms to raise debt more easily and at lower cost. Option B correctly captures this core capital structure relationship.
12 comments · newest first
WI
Willow
3 months ago
A is interesting too, but not as strong. Dividends are more about profits.
PA
Pa
3 months ago
Agreed! Lenders prefer collateral. Makes sense.
EU
Eura
3 months ago
I think B is the best answer. Tangible assets help secure loans.
MI
Mirta
3 months ago
Not so sure about that, seems like a stretch to me.
EV
Evan
3 months ago
I think it also plays a role in market expansion decisions.
RE
Rebbecca
4 months ago
Wait, how does that affect dividends though?
MA
Maurine
5 months ago
Totally agree, banks love collateral!
LE
Lenny
5 months ago
Tangible assets can definitely help secure debt financing.
AZ
Azzie
6 months ago
I’m a bit confused; I thought asset tangibility might affect market entry decisions, but I guess that’s more about strategy than capital structure.
LO
Louann
6 months ago
This question reminds me of a practice question we had about capital structure, and I feel like the focus was on debt financing being influenced by asset tangibility.
YV
Yvette
6 months ago
I remember discussing how tangible assets can serve as collateral for loans, so B seems like the right answer, but I wonder if it relates to dividends too.
BA
Basilia
6 months ago
I think asset tangibility mainly affects a company's ability to secure debt financing, but I'm not entirely sure if it also impacts convertible bonds.