Macroeconomic Conditions and Capital Raising
Ohio State University (OSU) - Department of Finance
Lundquist College of Business, University of Oregon
Seoul National University - Business School
Michael S. Weisbach
Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)
NBER Working Paper No. w16941
Do macroeconomic conditions affect firms' abilities to raise capital? If so, how do they affect the manner in which the capital is raised? We address these questions using a large sample of publicly-traded debt issues, seasoned equity offers, bank loans and private placements of equity and debt. Our results suggest that a borrower's credit quality significantly affects its ability to raise capital during macroeconomic downturns. For noninvestment-grade borrowers, capital raising tends to be procyclical while for investment-grade borrowers, it is countercyclical. Moreover, proceeds raised by investment grade firms are more likely to be held in cash in recessions than in expansions. Poor market conditions also affect the structure of securities offered, shifting them towards shorter maturities and more security. Overall, our results suggest that macroeconomic conditions influence the securities that firms issue to raise capital, the way in which these securities are structured and indeed firms' ability to raise capital at all. This influence likely occurs primarily through the effect of macroeconomic conditions on the supply of capital.
Number of Pages in PDF File: 45
Date posted: April 11, 2011
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