Question

What are the differences between personal and corporate attitudes toward debt and risk?

Answer 1

There is a lot of difference between personal attitude and corporate attitude towards debt and risk.

In personal attitude there is only one stakeholder involved which is oneself. So any decision that one takes will be according to ones appetite of risk . So in personal one will be very cautious in taking the debt and the risk and one would know his or hers risk appetite.

While in corporate generally persons managing the company are different and shareholders are different there is always clash between management and shareholders . Management would want to take more risks to generate return and hence increase their salaries and perks hence they may take higher risk and take huge debts which may put the interest of shareholders at stake. This may not be for every case with proper following of corporate governance and with the harmony between manager and shareholder corporates may know appropriate risk taking ability of shareholders and take risk and debt accordingly.