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Originally posted by sgtclub
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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1. Relative interest rates don't matter, corporate issuers as a whole will pay less in dividends than they will for interest because interest generates a tax benefit. This is what I do for a living, so I'm fairly comfortable with the concept. This is also why there are markets for things like DECS and MIPS.
2. Are you forgetting, overlooking, or just not pausing to think about your statement vis. junk bonds? If they're issuing junk, it's because they are bleeding capital and couldn't pay a dividend to begin with.
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Who do you think corporations are? They are investors with a box around them, nothing else.
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Actually, for relevance to this issue, they are debtors, not investors or creditors. You were discussing the attractiveness of issuing equity v. debt, so the relevant position of the corporation in the discussion is as a consumer of capital, not a supplier.
If you want to consider the corporation as an investor, then your point is lacking any logic at all. Corporate shareholdes have enjoyed a dividends received deduction for decades, ranging from 70% to 100%, depending on the size of their holding in the corporate shareholder. Thus, they have no place at all in the discussion of the Bush dividend tax break, since it doesn't apply to them.
