Subject: Business / Finance
Assuming a company does not have enough excess retained earnings to fund future projects that have positive NPV’s, they would have to sell debt or issue new capital. Issuing new capital is often thought of as a negative sign to current stock holders, thus most companies would prefer to sell debt instruments. There are more flotation costs with issuing stock then with selling bonds, and debt has a tax advantage over issuing stock.
With this said, if interest rates are extremely low like they are today and investors are shying away from long-term debt, does this cause a lack of liquidity in for companies? Does this make projects more expensive? Does this hurt the growth in the economy?