Financing feedback
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Financing feedback is an effect that is circularity created when additional debt causes additional interest expense, which reduces the addition to retained earnings, which in turn requires a higher level of debt, which causes still more interest expense, causing the cycle to be repeated.
Definitions
According to Financial Management Theory and Practice by Eugene F. Brigham and Michael C. Ehrhardt (13th edition),
- Financing feedback. Circularity created when additional debt causes additional interest expense, which reduces the addition to retained earnings, which in turn requires a higher level of debt, which causes still more interest expense, causing the cycle to be repeated.
Related concepts
- Financial management. A combination of enterprise efforts undertaken in order to procure and utilize monetary resources of the enterprise.
