Capital Structure Choice: Macroeconomic Conditions and Financial Constraints

Posted: 14 Mar 2003


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: G32, G1

Suggested Citation

Korajczyk, Robert A. and Levy, Amnon, Capital Structure Choice: Macroeconomic Conditions and Financial Constraints. Available at SSRN:

Robert A. Korajczyk (Contact Author)

Northwestern University ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
United States
847-491-8336 (Phone)
847-491-7781 (Fax)


Amnon Levy

Moody's KMV ( email )

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

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