SIFR Research Report Series, Institute for Financial Research
Isil Erel, Brandon Julio, Woojin Kim and Michael S. Weisbach
Macroeconomic Conditions and Capital Raising
Abstract: Economic theory, as well as commonly-stated views of
practitioners, suggests that macroeconomic conditions can affect both the
ability and manner in which firms raise external financing. Theory suggests
that downturns should be associated with a shift toward less
information-sensitive securities, as well as a ‘flight to quality,’ in
which firms can issue high-rated securities but not low-rated ones. We
evaluate these hypotheses on a large sample of publicly-traded debt issues,
seasoned equity offers, and bank loans. We find that worse macroeconomic
conditions lead firms to use less information-sensitive securities. In
addition, poor market conditions affect the structure of securities
offered, shifting them towards shorter maturities and more security.
Furthermore, market conditions affect the quality of securities offered,
with worsening conditions substantially lowering the number of low-rated
debt issues. Overall, these findings suggest that macroeconomic conditions
are important factors in firms’ capital raising decisions.
Keywords: Market downturns; Security choice; Maturity; Security; (follow links to similar papers)
JEL-Codes: E00; G32; (follow links to similar papers)
49 pages, September 17, 2010, Revised October 26, 2011
Please find updated version on http://fisher.osu.edu/fin/faculty/weisbach/wpapers.html
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
Questions (including download problems) about the papers in this series should be directed to Anki Helmer ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design by Joachim Ekebom