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Leverage Dynamics Over the Business Cycle

Michael Halling

Swedish House of Finance; University of Utah

Jin Yu

University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN)

Josef Zechner

Vienna University of Economics and Business

October 24, 2012

AFA 2012 Chicago Meetings Paper

This paper analyzes the business cycle dynamics of leverage using a comprehensive, international sample. For the full sample, target leverage ratios increase and speeds of adjustment towards the target decrease during recessions. These effects vary substantially across institutional settings. Firms in common law countries and with relatively high debtholder protection exhibit decreasing target leverage and a much smaller drop in the speed of adjustment in recessions. Leverage dynamics are largely not caused by changing firm characteristics but by their changing effects on firm policies. The results document that both demand and supply effects are important for capital structure.

Number of Pages in PDF File: 60

Keywords: Empirical Corporate Finance, Capital Structure Dynamics, Business Cycle Variation

JEL Classification: G32, G15

working papers series

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Date posted: February 15, 2011 ; Last revised: January 22, 2014

Suggested Citation

Halling, Michael and Yu, Jin and Zechner, Josef, Leverage Dynamics Over the Business Cycle (October 24, 2012). AFA 2012 Chicago Meetings Paper. Available at SSRN: http://ssrn.com/abstract=1762289 or http://dx.doi.org/10.2139/ssrn.1762289

Contact Information

Michael Halling
Swedish House of Finance ( email )
Drottninggatan 98
111 60 Stockholm

University of Utah ( email )
David Eccles School of Business
Salt Lake City, UT 84112
United States
HOME PAGE: http://www.business.utah.edu/~finmh
Jin Yu
University of New South Wales (UNSW) - School of Banking and Finance ( email )
School of Banking and Finance
Australian School of Business
Sydney, NSW 2052
HOME PAGE: http://www.asb.unsw.edu.au/schools/Pages/JinYu.aspx
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
HOME PAGE: http://www.firn.org.au

Josef Zechner (Contact Author)
Vienna University of Economics and Business ( email )
Heiligenstaedter Strasse 46
Vienna, Wien A-1019
Feedback to SSRN

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Downloads: 413
Download Rank: 37,169
References:  75
Citations:  5

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