Part of the explanation for that closed plant is that we have been living in a world of easy lending for decades. Starting in the 1980's, it became the higher-ROE option to leverage a business to the hilt, make debt-funded acquisitions, and direct the earnings to a smaller set of shares. If the business goes bankrupt as a result, the bondholders eat most of the cost. But the bondholders don't even notice because they are in ETFs and similar funds, and/or have come to expect this behavior. Similarly, stockholders are so diversified they are not too concerned about any particular company's risky leverage.
Do a lookup of junk bonds and you'll find lots of companies that increased and increased their leverage over the years until their debt to equity reached 5-7x, at which point it becomes prohibitively expensive to raise more cash through either debt or equity offerings. The result is a zombie company that sheds assets and employees, like your local factory, just to make interest payments. Any competitor that is acquiring assets with earnings, conducting R&D, or investing in marketing or quality will eventually outmaneuver an indebted competitor who is more focused on making one more quarter of interest (or dividend) payments. When you have an entire economy full of zombie companies, other economies will naturally become the more efficient, more innovative producers. In walks China.
I bet if the US limited the tax deductability of interest expenses to, say, 80% of the interest expense, the whole incentive structure would be transformed. However this could never happen due to entrenched interests. I'd also like to see management have more skin in the game in terms of bond ownership, which would disincentivize the short-term stock boosterism that leads to long slow declines.
