New study reveals optimal debt ratio for companies, avoiding financial risks.
The article discusses how companies can find the best mix of debt and equity to finance their operations. By balancing the tax benefits of debt with the risks of bankruptcy, a company can determine its optimal debt ratio. The study shows that having too much debt can be harmful, but a moderate amount can be beneficial. It suggests that companies should only adjust their capital structure if they are heavily in debt, and the best way to do so is through new financing. This research helps explain why some companies prefer to be conservative with their debt levels.