Too Much Debt Essay

Submitted By lhbui
Words: 301
Pages: 2

Article Review: “Is There Too Much Corporate Debt?” In “Is There Too Much Corporate Debt?” reading, the author addresses an issue about corporate debt has increased tremendously. The author Ben Bernanke focuses on two aspects: both “micro” and “macro” to evaluate the debt situation. Because interest payments are tax-deductible, firms borrow more on its long term debt. The higher leverage of a company also encourage people to work harder in order to increase its profit, as well as pay off the interest payments. To answer the question about recent debt expansion, the author also explains about uncontrolled factors which leads to free-cash-flow problems of some firms. Debt is a two-edged sword. Corporate debt can be profitable for many firms but the company must know how much is too much. Otherwise, companies with too much debt can find themselves in risky situation and ultimately, bankruptcy. On the other side, too much corporate debt can create the liquidity and solvency crisis. Higher level of debts can reduce the stability of the country’s economic system. Especially, the reading discusses two different circumstances: normal and recession economy situation to help the readers fully understand the pros and cons of increasing corporate debts. The author points out that the risk over level of debt depends on different financial environments and it is likely more risky for a company to have corporate debts in the past period than now a day. Moreover, the author strongly