Why is corporate long-term debt riskier than government long-term debt?

Question:

Why is corporate long-term debt riskier than government long-term debt?

Long Term Debt:

Long term debt refers to the money borrowed by the company whose payment will be made in future but not within the upcoming year. These debts involve substantial risk, and the borrower has a liability to clear the debt on the specified date.

Answer and Explanation:

The corporate debts are riskier in comparison to government bonds because corporate debts have the probability of making default in the payment. The insolvency of a corporate firm may result in loss of the whole amount of investors. Also, the principal amount and interest are not covered in case of insolvency of a firm. At the same time, government debts are more secured because, in case of an issue in payments, the government can increase the flow of money through printing more currency.


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Long-Term Debt: Definition, Cost & Formula

from Financial Accounting: Help and Review

Chapter 8 / Lesson 7
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