For companies with high growth stock (Netflix, Amazon or Tesla), does the increasing stock price mean they have access to cheaper capital? I've seen this mentioned in the news, but I'm confused how that works
An oversimplified explanation would possibly go like this:<p>Capital structure (i.e. proportion of debt and equity) is irrelevant in frictionless markets (<a href="https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theorem" rel="nofollow">https://en.wikipedia.org/wiki/Modigliani%E2%80%93Miller_theo...</a>).<p>That being assumed, management of a company can raise capital by either issuing new shares (equity) or by taking on debt. Given that management is rational, they would issue new stocks whenever they believe the stock price is slightly over-valued by the market and always take on debt if they think the opposite.<p>But in reality, companies cannot always issue new shares. However, potential creditors know the company could issue shares instead of taking their debt. So, they will lower their interest offer.<p>Does that make sense somehow?