Financial contracting along the business cycle
AbstractThe 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.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2003069.
Date of creation: 00 Oct 2003
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Optimal ﬁnancial contracts; endogenous ﬂuctuations;
Find related papers by JEL classification:
- D92 - Microeconomics - - Intertemporal Choice - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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