A study of the micro and macro issues involved in corporations taking on debt.
Written in 2006; 815 words; 1 sources; MLA; $ 29.95
Paper Summary:
This paper explores borrowing by corporations from the micro and macro perspective. First, the paper considers the influence of increased debts on the efficiency of the firm, explaining that proponents of high leverage claim that debt increases firm efficiency. Second, the paper looks at the macro issue, which is the impact of increase corporate debt on the stability of the country's economic and financial system.
Micro Issue: Does Debt Promote Efficiency?
The Macro Issue: How Does Debt Affect the National Economy?
From the Paper:
"Corporations usually prefer to use debt as a source of finance because of the tax advantage offered by debt financing. Interest payments made by a firm are tax deductible while dividend payments are not. However, in case of debt financing a firm is also exposed to the threat of bankruptcy and reorganization. According to the traditional view, maintaining the optimal ratio of debt to equity allows the firms to avoid such threats. Recent studies have focused on some other benefits that a firm may drive through increased debt financing."
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