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A macroeconomic approach to corporate capital structure

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  • Katagiri, Mitsuru

Abstract

The cross-sectional distribution of corporate capital structure and its macroeconomic implications are underexplored research areas. This paper embeds a dynamic trade-off theory of firm financing into a general equilibrium model with firm dynamics. I find that the stationary equilibrium replicates fairly well the distribution of leverage as well as the relationship between leverage, size and profitability. The counterfactual experiment points out relatively small effects of tax benefits on corporate capital structure. It also implies that the effects of the default cost on macroeconomic variables are almost negligible under endogenous capital structure choice.

Suggested Citation

  • Katagiri, Mitsuru, 2014. "A macroeconomic approach to corporate capital structure," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 79-94.
    • Handle: RePEc:eee:moneco:v:66:y:2014:i:c:p:79-94
    DOI: 10.1016/j.jmoneco.2014.04.003
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    Cited by:

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    2. Anh‐Tuan Doan & Bich‐Thanh Truong & Chi‐Cuong Nguyen & Phan‐Tam‐Nhu Nguyen & Hai‐Yen Truong & Anh‐Tuan Le, 2023. "Corruption and corporate leverage in an emerging economy: The role of economic freedom," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(2), pages 599-629, June.
    3. Paseda, Oluseun & Obademi, Olalekan, 2020. "Macroeconomic variables and their effects on the capital structure of quoted Nigerian firms," MPRA Paper 117060, University Library of Munich, Germany, revised 31 Jan 2020.
    4. Marios Karabarbounis & Patrick Macnamara & Roisin McCord, 2014. "A Business Cycle Analysis of Debt and Equity Financing," Economic Quarterly, Federal Reserve Bank of Richmond, issue 1Q, pages 51-85.
    5. Rana El Bahsh & Ali Alattar & Aziz N. Yusuf, 2018. "Firm, Industry and Country Level Determinants of Capital Structure: Evidence from Jordan," International Journal of Economics and Financial Issues, Econjournals, vol. 8(2), pages 175-190.
    6. Toshiaki Ogawa, 2020. "Liquidity Management of Heterogeneous Banks during the Great Recession," IMES Discussion Paper Series 20-E-05, Institute for Monetary and Economic Studies, Bank of Japan.
    7. Ogawa, Toshiaki, 2022. "Welfare implications of bank capital requirements under dynamic default decisions," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    8. Marios Karabarbounis & Patrick Macnamara, 2021. "Misallocation and Financial Frictions: the Role of Long-Term Financing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 44-63, April.
    9. Alimov, Behzod, 2022. "The dynamic effects of debt and equity inflows: Evidence from emerging and developing countries," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    10. Bolaji Tunde Matemilola & Mohamed Azali, 2021. "Interaction Impact of Monetary Policy and Inflation on Corporate Debt in Developing Nations," Capital Markets Review, Malaysian Finance Association, vol. 29(1), pages 1-16.
    11. Poeschl, Johannes, 2023. "Corporate debt maturity and investment over the business cycle," European Economic Review, Elsevier, vol. 152(C).
    12. Llobet-Dalmases, Joan & Plana-Erta, Dolors & Uribe, Jorge M., 2023. "Cyclical capital structure decisions," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    13. Marios Karabarbounis & Patrick Macnamara, 2019. "Misallocation and Credit Market Constraints: the Role of Long-Term Financing," Working Paper 19-1, Federal Reserve Bank of Richmond.
    14. A. Olayiwola, John & M. Ajide, Folorunsho, 2019. "Do Oil Price and Institutional Quality Matter for Dividend Policy in Nigeria?," Working Papers 12, Department of Economics, University of Ilorin.
    15. Marios Karabarbounis & Patrick Macnamara, 2021. "Misallocation and Financial Frictions: the Role of Long-Term Financing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 44-63, April.

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    More about this item

    Keywords

    Corporate capital structure; Dynamic trade-off theory; Firm dynamics;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity

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