If a corporation pays no taxes because it is losing money, a preferred stock issuance becomes more attractive than normal, relative to a debt issuance.

Question

Quizplus · Accepted Answer

Preferred stock dividends do not require the corporation to have taxable income to make distributions, unlike interest payments on debt which are tax-deductible. Therefore, when a corporation is not benefiting from the tax deductibility of interest due to losses, issuing preferred stock may become more attractive as it does not add to the financial burden of the company through obligatory interest payments.

If a Corporation Pays No Taxes Because It Is Losing