THE EFFECTS OF UNCERTAINTY ON THE LEVERAGE OF NONFINANCIAL FIRMS

Christopher Baum (), Andreas Stephan () and Oleksandr Talavera
Authors registered in the RePEc Author Service: Kewei Tang ()

Economic Inquiry, 2009, vol. 47, issue 2, pages 216-225

Abstract: "This paper investigates the link between the optimal level of nonfinancial firms' short-term leverage and macroeconomic and idiosyncratic sources of uncertainty. We develop a structural model of a firm's value maximization problem that predicts a negative relationship between uncertainty and optimal levels of borrowing. This proposition is tested using a panel of nonfinancial U.S. firms drawn from the COMPUSTAT quarterly database covering the period 1993-2003. The estimates confirm that as either form of uncertainty increases, firms decrease their levels of short-term leverage. This effect is stronger for macroeconomic uncertainty than for idiosyncratic uncertainty. " Copyright (c) 2008 Western Economic Association International.

JEL-codes: C23 D8 D92 G32 (search for similar items in EconPapers)
Date: 2009
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Working Paper: The Effects of Uncertainty on the Leverage of Non-Financial Firms (2007)
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