The trade-off theory relies on the threat of financial distress. But why should a public corporation ever have to land
The trade-off theory relies on the threat of financial distress. But why should a public corporation ever have to land in financial distress? According to the theory, the firm should operate at the top of the curve in Figure. Of course market movements or business setbacks could bump it up to a higher debt ratio and put it on the declining, right-hand side of the curve. But in that case, why doesnâ€™t the firm just issue equity, retire debt, and move to back up to the optimal debt ratio?
What are the reasons why companies donâ€™t issue stockâ€”or enough stockâ€”quickly enough to avoid financialdistress?
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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