Investors’ methods of substituting their own borrowing and lending for corporate borrowing. Investors seeking more leverage than a firm has used can buy the firm’s stock on margin by borrowing money from a broker and using the borrowed funds to pay for a portion of the stock price (in this sense, they add to the corporate borrowing). On the other extreme, investors who want less leverage than the firm has used can invest a portion of their funds in a risk-free security to offset some of the firm’s borrowing.
April 20, 2021
