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I had thought it was the other way around. Lower interest rates induces riskier bets; the so called: search for yield. Which means more investments for companie
by christianbm1 8y ago
I had thought it was the other way around. Lower interest rates induces riskier bets; the so called: search for yield. Which means more investments for companies with uncertain cash flows. This is the reason why the Ubers, Lyfts, Snapchats and others of the world are able to operate at huge losses. People are lining up to throw cash at these firms with the hopes to become, down the line, the next Facebook, Google or Apple.
- tumetab1 8y agoMe too but the theory they put forward is that big corporations can also get cheap credit and buy start ups.
- christianbm1 8y agoI suppose it makes sense: the Leveraged Loan market has been going gangbusters for a while now. If the choice was between a startup and an experienced junk-rated company - I guess for those risk averse investors in this low-yield environment - the latter would be a wiser investment. One can achieve a much faster profit if the firm borrows for share buybacks, dividend recaps, etc. But in theory, this is good for startups. While lower-rates are crowded out, there are much more willing buyers (other companies) for the startups - more supply, limited demand, higher price: higher valuation.