"This paper investigates the link between the optimal level of nonfinancial firms' short-term leverage and macroeconomic and idiosyncratic sources of uncertainty. We develop a structural model of a firm's value maximization problem that predicts a negative relationship between uncertainty and optimal levels of borrowing. This proposition is tested using a panel of nonfinancial U.S. firms drawn from the COMPUSTAT quarterly database covering the period 1993-2003. The estimates confirm that as either form of uncertainty increases, firms decrease their levels of short-term leverage. This effect is stronger for macroeconomic uncertainty than for idiosyncratic uncertainty. " Copyright (c) 2008 Western Economic Association International.
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Article provided by Western Economic Association International in its journal Economic Inquiry.
Find related papers by JEL classification: C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data D8 - Microeconomics - - Information, Knowledge, and Uncertainty D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Alan J. Auerbach, 1985.
"Real Determinants of Corporate Leverage,"
NBER Chapters,
in: Corporate Capital Structures in the United States, pages 301-324
National Bureau of Economic Research, Inc.
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Heitor Almeida & Murillo Campello & Michael S. Weisbach, 2004.
"The Cash Flow Sensitivity of Cash,"
Journal of Finance,
American Finance Association, vol. 59(4), pages 1777-1804, 08.
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