Debt flows, Foreign Direct Investment Flows and Portfolio Investment Flows

One of the factors that may affect a company's debt level is management. Another factor that may affect debt levels is whether the company is making profits or not.

house/car repossession

Energy

Given the fact that debt has to be repaid and interest has to be paid, having corporate debt on the balance sheet forces managers to provide enough cash flows to service the debt obligations. Thus, these cash flows go to the debt holders and cannot be used for perks for the managers or for unprofitable empire building. Furthermore, debt covenants can restrict managers in their (self interest maximizing) decisions. Finally, if debt is provided by a large e.g. institutional lender, this lender may have such a large stake in the firm that the lender acts as a valuable monitor