Report
Why is there a desire to strengthen companies' equity?
It is most often claimed that companies' equity must be strengthened, especially when they are highly indebted. Why is it generally preferable for companies to have significant equity? If companies have significant equity, they are more resilient to crises and unexpected shocks; since they can cut dividends during crises, the risk of bankruptcy is reduced; As a result , companies with high equity levels can take more risk and invest in riskier projects. But two mechanisms that work in the opposite direction must not be forgotten: The cost of capital in equity is far higher than the cost of capital in debt; Debt imposes discipline on business leaders: it forces them to manage their company more efficiently to avoid bankruptcy.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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