advantage of different securities (2)

The basic risk in all corporate investment is a possible loss of earning power , which will greatly reduce the value of its assets . often a company will undergo reorganization in which `the stockholders may be squeezed out completely ; the courts may appoint a "receiver" or trustee to run the business,and the bondholders may be given bonds(or even stocks!)equal only to some fraction of their original investment . Moreover,certain bond-holders may have prior claims over holders of other bonds.Many investors in railroad securities have learned of these possibilities the hard way.
From the corporation,s view, bond debt creates limited but inflexible fixed charges.these may be embarrassing in bad times.Preferred stock is slightly better with respect to flexibility;equity capital,best of all .