SEARS Holdings Corp. is one of the companies that have bonds on its balance sheet ( https://www.marketwatch.com/investing/stock/shldq/financials/balance-sheet ). The 2018 Financial statement showed long term debts and exclusive capitalized leases. The balance sheet also shows capitalized lease obligations. Bonds are forms of long-term financial obligations that may also include formal agreements and SEARS Corporation prefers to hold more bonds instead of stock because interest rates on bonds and other forms of debt are deductible on the corporation’s income while the dividends on common stock are not deductible (Pramitta et al., 2008) . Therefore, bond interest payments have a minimum impact on reducing the amount of dividends paid to the shareholders. Bonds are a form of debt and therefore the existing shareholder's ownership interests at SEARS Corporation are not diluted. This implies that since the company holds more bonds, future gains by the company from the bond proceeds minus the bond interest payments will be directed to the stockholders.
Generally, bond financing is cheaper than stock financing due to lower payment interests. This is because the objective of most companies is to minimize costs and to maximize income. Issuing more bonds than stock also gives SEARS Corporation freedom of operation since they are not attached to so many restrictions. Such restrictions would have hampered the company’s ability to do business and would limit its operations. Therefore issuing more bonds allows the company to raise finances with not so much strings attached giving them the freedom of operation (Santos & Winton, 2008) . It allows the company to attract more investors. There are other types of bonds issued at par on interest date that accrue no interest rates. There are neither premiums nor discount rates making it a more convenient method of financing for a business. The main objective of obtaining long-term financing through bonds over stock is the flexibility and freedom in the repayments and the lower or no interest rates incurred and thus making them more convenient.
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References
Santos, J. A., & Winton, A. (2008). Bank loans, bonds, and information monopolies across the business cycle. The Journal of Finance , 63 (3), 1315-1359.
Pramitta Yulianda, A., Thio, S., & Asri, M. (2018). Dilutive Securities and Earnings Per Share. Stevani and Asri, Marselinus, Dilutive Securities and Earnings Per Share (July 8, 2018) .
