Capital Structure Adjustments: Do Macroeconomic and Business Risks Matter?

Christopher Baum, Mustafa Caglayan () and Abdul Rashid ()

No 822, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We empirically examine the influence of risk on firms' capital structure adjustments. The process of adjustment is asymmetric and depends on the type of risk, its magnitude, the firm's actual leverage with respect to its target, and its financial status. We show that firms with financial surpluses and above-target leverage adjust their leverage more rapidly when firm-specific risk is low and when macroeconomic risk is high. Firms with financial deficits and below-target leverage adjust their capital structure more quickly when both types of risk are low. Our findings help to explain why managers seek to time equity and debt markets.

Keywords: macroeconomic risk; business risk; capital structure rebalancing; speed of adjustment; deviations from target leverage; financial deficits/surpluses (search for similar items in EconPapers)
JEL-codes: C23 D81 E44 G32 (search for similar items in EconPapers)
Date: 2013-04-13, Revised 2016-08-29
References: View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published, Empirical Economics, 53:4, 1463-1502, 2017.

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Journal Article: Capital structure adjustments: Do macroeconomic and business risks matter? (2017)
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