Macroeconomic Conditions and Capital Raising

Isil Erel, Brandon Julio (), Woojin Kim () and Michael Weisbach
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Isil Erel: Ohio State University

No 74, SIFR Research Report Series from Institute for Financial Research

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 (search for similar items in EconPapers)
JEL-codes: E00 G32 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2010-09-17, Revised 2011-10-26
New Economics Papers: this item is included in nep-mac
Note: Please find updated version on http://fisher.osu.edu/fin/faculty/weisbach/wpapers.html
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Related works:
Journal Article: Macroeconomic Conditions and Capital Raising (2012)
Working Paper: Macroeconomic Conditions and Capital Raising (2011)
Working Paper: Macroeconomic Conditions and Capital Raising (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:sifrwp:0074

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