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on Corporate Finance |
| By: | Dirk Hackbarth; Jianjun Miao; Erwan Morellec |
| Abstract: | This paper develops a framework for analyzing the impact of macroeconomic conditions on credit risk and dynamic capital structure choice. We begin by observing that when cash flows depend on current economic conditions, there will be a benefit for firms to adapt their default and financing policies to the position of the economy in the business cycle phase. We then demonstrate that this simple observation has a wide range of empirical implications for corporations. Notably, we show that our model can replicate observed debt levels and the countercyclicality of leverage ratios. We also demonstrate that it can reproduce the observed term structure of credit spreads and generate strictly positive credit spreads for debt contracts with very short maturities. Finally, we characterize the impact of macroeconomic conditions on the pace and size of capital structure changes, and debt capacity. |
| Keywords: | Dynamic capital structure, Credit spreads, Macroeconomic conditions |
| JEL: | G12 G32 G33 |
| Date: | 2010–11 |
| URL: | http://d.repec.org/n?u=RePEc:cuf:wpaper:439&r=cfn |
| By: | Jianjun Miao |
| Abstract: | This paper provides a competitive equilibrium model of capital structure and industry dynamics. In the model, firms make financing, investment, entry, and exit decisions subject to idiosyncratic technology shocks. The capital structure choice reflects the tradeoff between the tax benefits of debt and the associated bankruptcy and agency costs. The interaction between financing and production decisions influences the stationary distribution of firms and their survival probabilities. The analysis demonstrates that the equilibrium output price has an important feedback effect. This effect has a number of testable implications. For example, high growth industries have relatively lower leverage and turnover rates. |
| Keywords: | capital structure, agency costs, firm turnover, stationary equilibrium |
| Date: | 2011 |
| URL: | http://d.repec.org/n?u=RePEc:cuf:wpaper:440&r=cfn |
| By: | Carsten Burhop (University of Cologne); David Chambers (University of Cambridge); Brian Cheffins (University of Cambridge) |
| Abstract: | This study of initial public offerings (IPOs) carried out on the Berlin and London stock exchanges between 1900 and 1913 casts doubt on the received �law and finance� wisdom that legally mandated investor protection is pivotal to the development of capital markets. IPOs that resulted in official quotations on the London Stock Exchange performed as well as Berlin IPOs despite the Berlin market being more extensively regulated than the laissez faire London market. Moreover, the IPO failure rate on these two stock markets was lower than it was with better regulated US IPOs later in the 20th century. |
| Keywords: | Law and finance, initial public offering, regulation, investor protection, financial history |
| JEL: | G14 G18 G24 G32 G38 K22 N23 |
| Date: | 2011–03 |
| URL: | http://d.repec.org/n?u=RePEc:wso:wpaper:10&r=cfn |