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Ch. 8] TREATMENT OF SINKING FUND RESERVES 615
of corporation directors toward debt. There was a period
in our industrial development when corporate debt was regarded
as a transitory liability to be subsequently erased. The
early railroads were built with stock subscriptions and were
bonded only as a last expedient when money could be obtained
in no other way. In many instances their directors stated
explicitly that the debt was placed on the road only as an
emergency measure, and as soon as the line was completed
the bonds would be paid. In accordance with this theory,
most of the early railroad mortgage bonds were issued with
sinking fund provisions, so that a portion of each year's
earnings would be devoted to the task of bringing the road
out of debt. This view is now obsolete. Except among New
England financiers, accustomed to the traditions of local manufacturing
and lighting companies, the financial world has overcome
its distrust of permanent debt. There is, subconsciously
at least, the firm conviction that when one issue of bonds
matures another one will be issued and sold to take its place.
In other words, corporation directors now regard the corporate
debt as permanent. This point of view is based on the presupposition
of the continued economic productivity of corporate
property and on the implication that debt is based more
on intangible credit than on physical property.
The investor in corporation bonds, much as he may dislike
the idea of permanent debt, does not care when his bonds
mature so long as the corporation fully maintains the earning
power of the property securing them. If this is done, the corporation
managers consider themselves justified in assuming
that there is no need of paying the corporate debt except when
secured by assets which necessarily decline in value or amount.
As stated in connection with the previous discussion of long-term
and irredeemable bonds,^* the policy of permanent debt is
vicious, if based on the presumption of the indestructibility of
physical property. Yet if based, confessedly, on the permanence
and integrity of a corporation's credit structure, it has a good
" Book I, Chapter IV, page g8.
Beschrijving voorwerp
| Titel | The financial policy of corporations |
| Auteur | Dewing, Arthur Stone |
| Jaartal | 1926 |
| Collectienaam | NIVRA Historisch Archief, UBVU gedigitaliseerd |
| PPN | 344552586 |
| Toegangsgegevens (URL) | http://imagebase.ubvu.vu.nl/getobj.php?ppn=344552586 |
| Signatuur origineel | NIVRAHA149 |
| Evaluatie |
Beschrijving
| Titel | NIVRAHA149_00639 |
| Transcript | Ch. 8] TREATMENT OF SINKING FUND RESERVES 615 of corporation directors toward debt. There was a period in our industrial development when corporate debt was regarded as a transitory liability to be subsequently erased. The early railroads were built with stock subscriptions and were bonded only as a last expedient when money could be obtained in no other way. In many instances their directors stated explicitly that the debt was placed on the road only as an emergency measure, and as soon as the line was completed the bonds would be paid. In accordance with this theory, most of the early railroad mortgage bonds were issued with sinking fund provisions, so that a portion of each year's earnings would be devoted to the task of bringing the road out of debt. This view is now obsolete. Except among New England financiers, accustomed to the traditions of local manufacturing and lighting companies, the financial world has overcome its distrust of permanent debt. There is, subconsciously at least, the firm conviction that when one issue of bonds matures another one will be issued and sold to take its place. In other words, corporation directors now regard the corporate debt as permanent. This point of view is based on the presupposition of the continued economic productivity of corporate property and on the implication that debt is based more on intangible credit than on physical property. The investor in corporation bonds, much as he may dislike the idea of permanent debt, does not care when his bonds mature so long as the corporation fully maintains the earning power of the property securing them. If this is done, the corporation managers consider themselves justified in assuming that there is no need of paying the corporate debt except when secured by assets which necessarily decline in value or amount. As stated in connection with the previous discussion of long-term and irredeemable bonds,^* the policy of permanent debt is vicious, if based on the presumption of the indestructibility of physical property. Yet if based, confessedly, on the permanence and integrity of a corporation's credit structure, it has a good " Book I, Chapter IV, page g8. |
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