Financial Contracting Along the Business Cycle'

CORE Discussion Paper No. 2003/69

30 Pages Posted: 31 May 2007

See all articles by Andrea Attar

Andrea Attar

Toulouse School of Economics; University of Roma Tor Vergata

Date Written: October 2003

Abstract

The paper investigates the effects of macroeconomic conditions on firms' capital structure. We introduce a repeated lender-borrower interaction that allows for debt and equity financing to co-exist as optimal securities in every period. The presence of asymmetric information in the market for loans is responsible for endogenous fluctuations to take place.It is possible to state sufficient conditions for the overall economy debt-equity ratio to exhibit a counter-cyclical behavior. This result is widely supported by several recent empirical finance works.

Keywords: Optimal Financial Contracts, Endogenous Fluctuations.

JEL Classification: D92, E33, G33.

Suggested Citation

Attar, Andrea, Financial Contracting Along the Business Cycle' (October 2003). Available at SSRN: https://ssrn.com/abstract=988670 or http://dx.doi.org/10.2139/ssrn.988670

Andrea Attar (Contact Author)

Toulouse School of Economics

21, allée de Brienne
Toulouse, F 31000
France
+33 5 61128578 (Phone)

University of Roma Tor Vergata ( email )

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00100 Rome
Italy

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