Capital Structure Choice: Macroeconomic Conditions and Financial Constraints

AFA 2002 Atlanta Meetings; Kellogg School of Mgmt. Finance Working Paper No. 279

50 Pages Posted: 4 Mar 2002  

Multiple version iconThere are 2 versions of this paper

Date Written: June 17, 2002

Abstract

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.

Keywords: Capital structure, Business cycles, Financial constraints

JEL Classification: G1, G32, E32

Suggested Citation

Korajczyk, Robert A. and Levy, Amnon, Capital Structure Choice: Macroeconomic Conditions and Financial Constraints (June 17, 2002). AFA 2002 Atlanta Meetings; Kellogg School of Mgmt. Finance Working Paper No. 279. Available at SSRN: https://ssrn.com/abstract=281430 or http://dx.doi.org/10.2139/ssrn.281430

Robert A. Korajczyk

Northwestern University - Kellogg School of Management ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208
United States
847-491-8336 (Phone)
847-491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

Amnon Levy (Contact Author)

Moody's KMV ( email )

405 Howard Street
Suite 140
San Francisco, CA 94105
United States

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