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Corporate Debt Redemption Management in Favorable Economic Times:A Lifeline During Tumultuous Economic Recession


Affiliations
1 Sri Aurobindo College of Commerce and Management, Ludhiana, India
2 Dept. of Commerce, Guru Nanak Dev University, Amritsar, Punjab, India
     

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The sub-prime crisis that emanated in the United States, did not remain confined to it rather it also affected the economies of Europe, United Kingdom, Asia and several other countries around the globe. On account of globalisation, even the Indian economy could not remain insulated from such an exogenous shock and registered a GDP growth rate of 6.7 per cent in the FY 2008-09 indicating a slowdown in the economic growth of Indian economy after the onset of global recession. Its ripple effects spilled-over to corporates reflecting through their reduced sales and cascade onto their profits. In this backdrop, debt redemption becomes an issue of greater concern during the tumultuous period of economic recession, when the liquid resources of the companies are constrained. Therefore, the present research paper suggests the companies to create funded reserves against debt, ensure flexibility in capital structure by issuing convertible debentures and employ favourable financial leverage during favourable economic times to withstand the economic downturn.

Keywords

Debt Redemption Management, Financial Leverage, Sub-Prime Crisis, Global Recession and Economic Slowdown.
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  • Corporate Debt Redemption Management in Favorable Economic Times:A Lifeline During Tumultuous Economic Recession

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Authors

Priyansha Mahajan
Sri Aurobindo College of Commerce and Management, Ludhiana, India
Fulbag Singh
Dept. of Commerce, Guru Nanak Dev University, Amritsar, Punjab, India

Abstract


The sub-prime crisis that emanated in the United States, did not remain confined to it rather it also affected the economies of Europe, United Kingdom, Asia and several other countries around the globe. On account of globalisation, even the Indian economy could not remain insulated from such an exogenous shock and registered a GDP growth rate of 6.7 per cent in the FY 2008-09 indicating a slowdown in the economic growth of Indian economy after the onset of global recession. Its ripple effects spilled-over to corporates reflecting through their reduced sales and cascade onto their profits. In this backdrop, debt redemption becomes an issue of greater concern during the tumultuous period of economic recession, when the liquid resources of the companies are constrained. Therefore, the present research paper suggests the companies to create funded reserves against debt, ensure flexibility in capital structure by issuing convertible debentures and employ favourable financial leverage during favourable economic times to withstand the economic downturn.

Keywords


Debt Redemption Management, Financial Leverage, Sub-Prime Crisis, Global Recession and Economic Slowdown.

References