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Originally posted by taxwonk
Equity financing is seldom less expensive than debt for two reasons. The fees taken by underwriters are larger on equity issues than on debt issues, and significantly larger than on standard bank borrowing or the CP market. In addition, corporations, all things being equal, would rather incur debt because interest is deductible, while dividends are not.
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How can you make this statement without knowing the relative interest rates? And your statement regarding underwriters fees is just not accurate, especially considering that there is a ton of debt issued in the junk bond market.
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Investors, not corporations, like dividends. They are willing to pay more for stock paying dividends. That is why Microsoft paid dividends.
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Who do you think corporations are? They are investors with a box around them, nothing else.
