Thursday, February 19, 2009

All stupidity is rooted in tax law

Why have companies learned to finance operations through debt?
The merits of equity v debt | Debtors' prison | The Economist:

... Corporate-finance theory may state that the value of a company should not be affected by its decision to finance itself with equity or debt. But, in practice, interest payments are generally tax-deductible; dividends are not. That gives companies a big push in the direction of debt...
If you ever see something in the world that seems bizarre, like rice paddies in the middle of 1970s Tokyo, think tax law and accounting.

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