4 ms·
I think you misunderstood the parent. They're discussing the case where a corporation has no high NPV projects available to it, and the best thing to do would b
by GlennS 6y ago
I think you misunderstood the parent. They're discussing the case where a corporation has no high NPV projects available to it, and the best thing to do would be for it to return money to investors. They can then spend it on other companies which do have those opportunities.
In that case, it has to take that money as profits instead of reinvesting, and so is taxed.
- clairity 6y agothat's more theoretical than practical. in many cases companies can work around that limitation to make such investments without (all of) those tax implications. money is typically returned to investors because the board and the executives want it to diversify themselves away, not because there are no npv positive projects to invest in. and there are plenty of ways to spend on protecting existing income streams, which is what we see companies doing regularly. there are lots of principle-agent problems and moral hazards in this realm that cloud the practical from the theoretical.