Originally Posted by vistabeta_2
Another more refined reason (you wouldn't find it anywhere) is that after 9/11 the airlines shares all over the world tumbled . Why would IB going to distribute benefits to public shareholders with those clearly undervalued stock prices ? Because the core shareholders didn't needed the money , they preferred to store the benefits inside IB rather that distribute with a very high yield to public shareholders that pay IB stock to an undervalue price because the after 9/11 world's airlines stock situation . Because "security concerns" and "financial woes" , and "oil price" situation , the world's airlines stock are heavely undervalue in any case , so why distribute profits ?
Hmm. This is an unusual logic. Normally if management believes its shares are undervalued and it has surplus cash it looks to buy back those shares in the market and cancel them, not build up an inefficient balance sheet. And if core shareholders also agree that a company is undervalued they would be expected to encourage management to buy back shares or return the cash to them, again not to build up a war-chest. If you are right about IB's balance sheet it doesn't make sense for a capital intensive company whose shares are cheap (and therefore whose cost of equity is expensive) to fund its entire balance sheet with equity and run no leverage.