That’s the query that we (myself, Roger Mayer of NC State and Jing Zhao at Portland State) not too long ago studied in a paper that’s forthcoming in the finance journal: Monetary Administration. Capital markets should not at all times open and accessible: In utopian company finance, a company with a great funding alternative, i.e., one that earns greater than the price of capital can at all times elevate capital from equity or debt market, shortly, at a good price and with little or no issuance prices. In the true world, capital markets are not that accommodating. Raising capital generally is a costly exercise, buyers could underneath worth your debt and equity, and the process can take time. It ought to come as no shock then that if an organization pays an excessive amount of in dividends in this setting, it should find itself rejecting good investments.
It needs to … Read More