If they’re borrowing, why are they paying dividends? In a non-capitalist society, they would only pay dividends when they’re profitable, if they’re profitable and debt free.
Because borrowing allows tax efficient financing of operations and business growth. Corporate debt by the way, also allows investors a lower risk way of participating in private enterprise.
“In a non-capitalist society.” You mean one in which the joint stock company doesn’t exist? Yeah if they didn’t exist it would be pretty hard for them to either borrow or pay dividends.
Not trying to make a normative point, but society as it really exists (not some utopian counterfactual) and our legal system makes it very hard for them to do anything else. It would be weird and likely catastrophic if a corporation was like “we’re going to deliberately screw over our share holders to pay back our bondholders even though it will probably result in poorer value service to customers because it would dramatically increase our cost of capital”.
If they’re borrowing, why are they paying dividends? In a non-capitalist society, they would only pay dividends when they’re profitable, if they’re profitable and debt free.
Because borrowing allows tax efficient financing of operations and business growth. Corporate debt by the way, also allows investors a lower risk way of participating in private enterprise.
“In a non-capitalist society.” You mean one in which the joint stock company doesn’t exist? Yeah if they didn’t exist it would be pretty hard for them to either borrow or pay dividends.
Not trying to make a normative point, but society as it really exists (not some utopian counterfactual) and our legal system makes it very hard for them to do anything else. It would be weird and likely catastrophic if a corporation was like “we’re going to deliberately screw over our share holders to pay back our bondholders even though it will probably result in poorer value service to customers because it would dramatically increase our cost of capital”.