Interdependent Capital Structure Choices and the Macroeconomy
Authors
Gomez-Gonzalez, Jose Eduardo
Uribe, Jorge M.
Hirs-Garzon, Jorge
Editor
Publication date
2021-04-06
Document language
spa
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Journal Title
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Volume Title
Abstract
This study shows that capital structure choices of US corporations are interdependent across time. We follow a two-step estimation approach. First, using a large cross-section of firms we estimate year-by-year average capital structure choices, i.e., the average firm’s percentage of new funding that is secured through debt, its term composition, and the percentage of new equity represented by retained earnings. Second, these time series are included in a Factor Augmented Vector Autoregressive model in which three factors representing real economic activity, expected future funding conditions, and prices, are included. We test for the interdependence between optimal capital structure decisions and for the influence exerted by macroeconomic conditions on these decisions. Results show there is a hierarchical order in which firms make capital structure decisions. They first decide on the share of debt out of total new funding they will hire. Conditional on this they decide on the term of their debt and on their earnings retention policy. Of outmost importance, macroeconomic factors are key for making capital structure decisions.
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Códigos JEL
D25 - Intertemporal Firm Choice: Investment, Capacity, and Financing, G30 - Corporate Finance and Governance: General, L16 - Industrial Organization and Macroeconomics; Industrial Structure and Structural Change; Industrial Price Indices
item.page.subjectjelspa
Keywords
Keywords
Firms' capital structure, Financing hierarchy, Macroeconomic factors, FAVAR model
