Abstract

http://ssrn.com/abstract=395480
 
 

Citations (75)



 
 

Footnotes (15)



 


 



Capital Structure, Credit Risk, and Macroeconomic Conditions


Jianjun Miao


Boston University - Department of Economics

Dirk Hackbarth


Boston University School of Management

Erwan Morellec


Ecole Polytechnique Fédérale de Lausanne; Swiss Finance Institute

May 2004

Simon School of Business Working Paper No. FR 03-10

Abstract:     
This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. A number of new predictions follow.

Number of Pages in PDF File: 40

Keywords: Dynamic Capital Structure, Credit Spreads, Macroeconomic Conditions

JEL Classification: G12, G32, G33

working papers series


Download This Paper

Date posted: April 23, 2003  

Suggested Citation

Miao, Jianjun and Hackbarth, Dirk and Morellec, Erwan, Capital Structure, Credit Risk, and Macroeconomic Conditions (May 2004). Simon School of Business Working Paper No. FR 03-10. Available at SSRN: http://ssrn.com/abstract=395480 or http://dx.doi.org/10.2139/ssrn.395480

Contact Information

Jianjun Miao
Boston University - Department of Economics ( email )
270 Bay State Road
Boston, MA 02215
United States
617-353-6675 (Phone)
HOME PAGE: http://people.bu.edu/miaoj
Dirk Hackbarth
Boston University School of Management ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)
HOME PAGE: http://people.bu.edu/dhackbar/
Erwan Morellec (Contact Author)
Ecole Polytechnique Fédérale de Lausanne ( email )
College of Management
Extranef Quartier UNIL-Dorigny
1015 Lausanne, CH-1015
Switzerland
HOME PAGE: http://sfi.epfl.ch/
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Feedback to SSRN


Paper statistics
Abstract Views: 6,231
Downloads: 1,884
Download Rank: 3,831
Citations:  75
Footnotes:  15

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.313 seconds