Inflation, capital structure and firm value

Andrea Fabiani and Fabio Massimo Piersanti

No 1434, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: How does inflation affect firms' performance, conditional on their capital structure? To answer this question, we exploit survey-based inflation surprises from the Eurozone and analyze the cross-section of stock returns for non-financial companies on days of release of inflation data over the period 2020-2022. Our results suggest that, in reaction to a positive inflation surprise, firms with relatively higher financial leverage experience larger stock returns. Moreover, long-term leverage drives the adjustment, consistent with Fisherian theories emphasizing the fall in the real value of debt liabilities associated with higher inflation.

Keywords: inflation; capital structure; leverage; debt maturity; stock returns; high-frequency (search for similar items in EconPapers)
JEL-codes: E31 E50 G12 G30 G32 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-eur and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1434_23

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