In which one of the following countries do firms tend to rely most heavily on equity financing?

• A. Germany
• B. France
• C. Japan
• D. United States

Answer: (D)

Verified step by step guidance

1. Understand the difference between equity financing and debt financing: Equity financing involves raising capital through the sale of shares, while debt financing involves borrowing funds that must be repaid with interest.
2. Recognize that different countries have different financial systems influencing how firms raise capital. For example, some countries have bank-based systems where firms rely more on loans (debt), while others have market-based systems where firms rely more on issuing stocks (equity).
3. Identify that the United States is known for having a market-based financial system, where firms tend to rely more heavily on equity financing through stock markets and capital markets.
4. Contrast this with countries like Germany, France, and Japan, which traditionally have bank-based financial systems where firms rely more on debt financing from banks rather than equity.
5. Therefore, to determine which country’s firms rely most heavily on equity financing, analyze the structure of their financial systems and the prevalence of stock markets versus bank lending.