How does a company with a high beta typically handle debt?

A company with a high beta is characterized by its higher volatility in relation to market movements. This increased risk makes them cautious about taking on additional debt. The reason is that higher debt levels can exacerbate their financial risk, especially in downturns when their stock price is already affected more dramatically.

This reluctance to use debt ensures that they are not over-leveraging themselves, which could lead to greater financial distress during volatile periods. Companies with high beta values need to carefully consider the impact of interest payments and obligations that come with debt, as their earnings may fluctuate significantly, affecting their ability to meet those obligations.

Maintaining a balanced approach to capital structure allows high beta companies to navigate market uncertainties effectively while minimizing the risks associated with excessive debt.