How Government Debt Shapes Corporate Behavior

(Knowledge @ Wharton) – The federal government borrows money by selling bonds. Investors then must choose between safe government bonds and the higher yields of riskier alternatives like corporate bonds.

All that is clear, even to those with only a basic understanding of the financial markets. But sometimes the government sells a lot of bonds, other times fewer. How does the ever-changing level of government issuance affect corporate policies on the critical issues of financing and investment, such as whether to raise money through bond sales or new stock issues? The picture has long been murky. Read the full story.

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