1.3 Evaluation of advantages and disadvantages of the funding sources: Equity share issue: In the view of Fridson and Alvarez (2002), the principle benefit of raining funds through equity shares is that it does not create any interest payment obligation for a company. Thus, companies can keep financial leverage under control by raising funds through equity share issue. In contrast, Drury (2000) argued that ownership of a company gets diluted because of the equity share issue. Preference share issue: Preference shares do not result in dilution of managerial control and ownership. However, payment of interest to preference shares prior to the dividend payment for equity shares is often viewed as a serious limitation of raising funds through preference share issue. According to El Kasmioui and Ceulemans (2012), the obligation to pay interest at regular intervals on preference shares is a key weakness of preference share issue. Debenture issue: Debentures are a popular source of finance as these do not impact the ownership structure of a company. The cost of issuing debentures is also comparatively lower than that of issuing equity shares. Legal formalities are also less in case of debentures. However, Halevi (2006) stated that periodic interest payments can be a serious concern for companies having liquidity problems.
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