For enterprises, the risk of equity financing is usually less than that of debt financing, and the dividend income of stock investors is usually determined by the profit level and development needs of enterprises. Compared with the development of corporate bonds, the company has no fixed pressure to pay interest, and the common stock has no fixed maturity date, so there is no financing risk of repaying principal and interest. However, when an enterprise issues bonds, it must bear the obligation to pay interest and repay the principal on time, which the company must bear. It has nothing to do with the company's operating conditions and profitability. When the company is not well managed, it may face great pressure to pay interest and debts, leading to the break of the capital chain and bankruptcy. Therefore, enterprises face higher financial risks when issuing bonds.
For financing companies, dividends are paid from after-tax profits, which are not tax deductible. The issuance cost of stocks is generally higher than other securities, while the interest expenses of debt funds are paid before tax and are tax deductible. Therefore, the cost of equity financing is generally higher than debt financing.