The Capital Structure Shuffle

June 11, 2024 | Thomas Neuhardt, Research Associate

In the years following the Global Financial Crisis, issuing new debt was an easy decision for companies looking to raise capital given an environment of historically low interest rates. That said, decisions related to the composition of corporate capital structures are now less straightforward due to seismic shifts in monetary policy that have taken place in recent time. To that point, this week’s chart compares the yield-to-worst of the Bloomberg U.S. Corporate Bond Index, a proxy for the cost of debt, to the earnings yield of the S&P 500 Index. The earnings yield is calculated by dividing earnings-per-share by the price of the index and is used as a proxy to determine the costs companies face when it comes to new equity share issuance (i.e., the lower the earnings yield, the cheaper it is to sell shares and vice versa). As readers can observe in the chart above, this yield now sits below the yield-to-worst of the fixed income index.

Companies generally prefer issuing debt over equity due to the tax shield associated with this financing (i.e., interest expenses are typically tax-deductible), which still renders debt the more cost-efficient option for many companies in the current environment. Further, equity issuance is often viewed negatively by market participants due to the dilution of per-share earnings that arises as a result.  There are, of course, additional factors beyond the costs of debt and equity that CFOs must consider when making decisions related to capital structure dynamics. That said, in light of the trends outlined above, many companies may begin to view equity issuance as a more attractive option when it comes to raising capital.

Print PDF

Thomas Neuhardt
Research Associate

Get to Know Thomas

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Related Content


What Does Elevated Index Concentration Mean for Active U.S. Equity Managers?

Indexing has risen in popularity over the last decade, particularly for U.S. equity investors. The fees are lower and indexing…


Disappointments to the Downside

Many readers likely know that when it comes to investor sentiment and market performance, economic results relative to forecasts can…


“Renew” Your Opinion on Policy Bets

During election season, investors are often tempted to position their portfolios based on expectations related to potential changes in government…


2024 Halftime Market Insights Webinar

— LIVE WEBINAR JULY 23 — Please join Marquette’s research team for our 2024 Halftime…


Airline Stocks: Just Plane Challenged

Although travelers have happily bid farewell to pandemic-related restrictions and returned to the skies en masse, airline stocks seem to…


Credit Check

Interest in private credit has grown considerably in recent years and the asset class has moved from a relatively small…

More articles

Subscribe to Research Email Alerts

Research Email Alert Subscription

Research alerts keep you updated on our latest research publications. Simply enter your contact information, choose the research alerts you would like to receive and click Subscribe. Alerts will be sent as research is published.

We respect your privacy. We will never share or sell your information.

Thank You

We appreciate your interest in Marquette Associates.

If you have questions or need further information, please contact us directly and we will respond to your inquiry within 24 hours.

Contact Us >