Macroeconomic Conditions, Financial Constraints, and Firms’ Financing Decisions

47 Pages Posted: 15 Sep 2018 Last revised: 21 Dec 2018

See all articles by Xin (Simba) Chang

Xin (Simba) Chang

Nanyang Business School, Nanyang Technological University

Yunling Chen

Tsinghua University - Department of Finance

Sudipto Dasgupta

Chinese University of Hong Kong and CEPR

Date Written: August 30, 2018

Abstract

We examine how time-varying macroeconomic conditions affect firms’ financing decisions. A principal components decomposition of several macroeconomic variables characterizes three phases of the business cycle relative to recessions: early recovery, robust recovery, and economic crest; a fourth represents “windows of opportunity” in capital markets that are unrelated to recessions. This characterization yields results that traditional approaches miss. Specifically, debt issuance exhibits a non-monotonic pattern during the upward phase of the business cycle: it declines in robust recovery relative to recessions but peaks at the economic crest. Financially constrained firms issue more equity during windows of high stock market valuation, whereas unconstrained firms time debt issuance in response to debt market spreads.

Keywords: Capital Structure, Debt Maturity, Financial Constraints, Macroeconomic Conditions, Market Timing

JEL Classification: G32, E32

Suggested Citation

Chang, Xin and Chen, Yunling and Dasgupta, Sudipto, Macroeconomic Conditions, Financial Constraints, and Firms’ Financing Decisions (August 30, 2018). Journal of Banking and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3241168 or http://dx.doi.org/10.2139/ssrn.3241168

Xin Chang

Nanyang Business School, Nanyang Technological University ( email )

S3-B1B-76 Nanyang Avenue
Singapore, 639798
Singapore

HOME PAGE: http://www.ntu.edu.sg/home/changxin

Yunling Chen (Contact Author)

Tsinghua University - Department of Finance ( email )

Tsinghua University
Beijing, 100084
China
86-10-62798631 (Phone)

Sudipto Dasgupta

Chinese University of Hong Kong and CEPR ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
86
Abstract Views
604
rank
312,570
PlumX Metrics