One thing I don’t fully get yet, is that you say that if the DO return on equity is lower than that of a government loan, the shareholders should just dissolve the company. How is dissolving the company going to get them their money out? They’ll get only a tiny sliver of their original investment back, right?
They're not quite right. They won't dissolve the company.
What happens is that market participants sell their holdings of the company's stock (since they want to free it up to buy bonds with higher returns), causing the stock price to fall. Eventually the price theoretically reaches an equilibrium level where it's worth what it should be relative to the risk-free interest rate (with a risk premium factored in).
Whichever participants were still holding company stock will have seen the value of their holdings shrink as a result of this price fall.
So what do company executives do? They cut costs (staff and investments for the future) to improve their operating profit, which directly equates to justifying a higher stock price - thus lessening the fall in the stock's price. They're being compared to peers/competitors, too.
What if they don't do this? Shareholders (often big funds) won't be happy (because their own portfolio value will fall and they might lose bonuses or get fired), and some will call for the CEO to be replaced by someone who will do the job.
One thing I don’t fully get yet, is that you say that if the DO return on equity is lower than that of a government loan, the shareholders should just dissolve the company. How is dissolving the company going to get them their money out? They’ll get only a tiny sliver of their original investment back, right?