Wednesday, June 22, 2005
In a risky environment normally investments are high risk high return. Banks are willing to lend money to corporations for higher yield. In such risky environment corporations are therefore tempted to borrow more for higher debt/equity ratio because shareholders are not liable to debts and their equity is relatively small compare to the possible return of investment. This is the only way to fuel economic development by limiting the downside risk of investor and use unlimited upside return to satisfy greed.