Why do equity investors face more risk compared to debt investors?

Equity investors face more risk compared to debt investors primarily because they have no required repayments and lower priority in the capital structure. This means that equity investors are the last to be paid in the event of liquidation or bankruptcy, after all debt obligations have been settled.

Debt investors have a contractual right to receive interest payments and the return of their principal, which provides them with more security and a guaranteed return, barring default. On the other hand, equity investors benefit from potential price appreciation and dividends, but these returns are not guaranteed. They are subject to the performance of the company and market conditions. If a company performs poorly, equity investors may not receive any returns and could even lose their entire investment.

In essence, the risk for equity investors arises from their position in the capital structure and the lack of guaranteed returns, making their investment more volatile and subject to the company's performance and broader market factors.