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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/27358
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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-MF-00-10 |
| 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 patters 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 weighing the trade-off between
agency problems and risk sharing. During contractions, 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/2451/27358 |
| Appears in Collections: | Macro Finance
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