Capital Structure Adjustments: Do Macroeconomic and Business Risks Matter?
AbstractWe empirically examine the influence of risk on firms' capital structure adjustments. The process of adjustment is asymmetric and depends on the type of risk, its magnitude, the firm's actual leverage with respect to its target, and its financial status. We show that firms with financial surpluses and above-target leverage adjust their leverage more rapidly when firm-specific risk is low and when macroeconomic risk is high. Firms with financial deficits and below-target leverage adjust their capital structure more quickly when both types of risk are low. Our findings help to explain why managers seek to time equity and debt markets.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 822.
Date of creation: 13 Apr 2013
Date of revision: 23 Nov 2013
Contact details of provider:
Postal: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Web page: http://fmwww.bc.edu/EC/
More information through EDIRC
macroeconomic risk; business risk; capital structure rebalancing; speed of adjustment; deviations from target leverage; financial deficits/surpluses;
Find related papers by JEL classification:
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-20 (All new papers)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F Baum).
If references are entirely missing, you can add them using this form.