Capital Structure Choice: Macroeconomic Conditions and Financial Constraints
Robert A. Korajczyk
Northwestern University - Kellogg School of Management
June 17, 2002
AFA 2002 Atlanta Meetings; Kellogg School of Mgmt. Finance Working Paper No. 279
This paper provides new evidence of how macroeconomic conditions affect capital structure choice. We model firms' target capital structures as a function of macroeconomic conditions and firm-specific variables. We split our sample based on a measure of financial constraints. Target leverage is counter-cyclical for the relatively unconstrained sample, but pro-cyclical for the relatively constrained sample. Macroeconomic conditions are significant for issue choice for unconstrained firms but less so for constrained firms. Our results support the hypothesis that unconstrained firms time their issue choice to coincide with periods of favorable macroeconomic conditions, while constrained firms do not.
Number of Pages in PDF File: 50
Keywords: Capital structure, Business cycles, Financial constraints
JEL Classification: G1, G32, E32
Date posted: March 4, 2002
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