Macroeconomic Conditions and Capital Raising

Charles A. Dice Center Working Paper No. 2011-9

Fisher College of Business Working Paper No. 2011-03-009

46 Pages Posted: 7 Apr 2011 Last revised: 22 Jul 2011

See all articles by Isil Erel

Isil Erel

Ohio State University (OSU) - Department of Finance

Brandon Julio

Lundquist College of Business, University of Oregon

Woojin Kim

Seoul National University - Business School

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: July 21, 2011

Abstract

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.

Keywords: Financial Conditions, Business Cycles, Maturity, Seniority

JEL Classification: E00, G21, G32

Suggested Citation

Erel, Isil and Julio, Brandon and Kim, Woojin and Weisbach, Michael S., Macroeconomic Conditions and Capital Raising (July 21, 2011). Charles A. Dice Center Working Paper No. 2011-9; Fisher College of Business Working Paper No. 2011-03-009. Available at SSRN: https://ssrn.com/abstract=1803455 or http://dx.doi.org/10.2139/ssrn.1803455

Isil Erel

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Woojin Kim

Seoul National University - Business School ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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