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Corporate Financial Policy, Taxation, and Macroeconomic Risk Author info | Abstract | Publisher info | Download info | Related research | Statistics Mark Gertler
R. Glenn Hubbard
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This article formalizes the intuition that equity provides firms with a cushion against aggregate fluctuations. We show that equity allows a firm to share aggregate risks with its creditors, minimizing the chance that a recession could push it into financial distress. The tax bias against equity finance reduces the extent to which firms insulate themselves against aggregate risks. The role of equity in sharing aggregate risks leads to the prediction that firms' dividends should vary with macroeconomic conditions, after controlling for the effects of relevant firm-level variables. We present empirical evidence in support of this prediction.
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Article provided by The RAND Corporation in its journal RAND Journal of Economics .
Volume (Year): 24 (1993)
Issue (Month): 2 (Summer)
Pages: 286-303
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Handle: RePEc:rje:randje:v:24:y:1993:i:summer:p:286-303Contact details of provider: Web page: http://www.rje.org
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Matteo Iacoviello, 2002.
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Other versions: Jean Helwege & Christo Pirinsky & René M. Stulz, 2005.
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2005-14, Ohio State University, Charles A. Dice Center for Research in Financial Economics.
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