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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26784
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| Title: | Why Does Capital Structure Choice Vary With Macroeconomic Conditions? |
| Authors: | Levy, Amnon |
| Issue Date: | 1-Dec-2000 |
| Series/Report no.: | S-CDM-00-12 |
| Abstract: | This paper develops a calibrated model that explains the pronounced
counter-cyclical leverage patterns observed for firms that access public
capital markets, and relates these patterns to debt and equity issues.
Moreover, it explains why leverage and debt issues do not exhibit this
pronounced behavior for firms that face more severe constraints when
accessing capital markets. In the model, managers issue a combination of
debt and equity to finance investment by weighting the trade-off between
agency problems and risk sharing. During contraction, leveraged managers
receive a relatively small share of wealth, resulting in a relative
increase in household demand for securities. Securities markets clear as
managers that are not up against their borrowing constraints increase
leverage while satisfying the agency condition that they maintain a
large enough portion of their firm's equity. |
| URI: | http://hdl.handle.net/2451/26784 |
| Appears in Collections: | Credit & Debt Markets
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