How does enron rise and collapse illustrate this proposition

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The M&M theory states it does not make any difference from an economist's view whether a firm raises financing as equity or debt. However floatation costs are more for equity than debt and interest on debt is tax deductible whereas dividends are not. How do you explain this difference between the market realities and the M&M theory? Further given the experience of Metalgesellschaft and Enron what business risks are related to excessive debt not accounted for by M&M? As explained in previous lessons, all Bubbles start for a logical reason but when they collapse scams and scandals are often exposed. How does Enron's rise and collapse illustrate this proposition?

Reference no: EM13267350

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