A Macroeconomic Approach to Corporate Capital Structure

Mitsuru Katagiri

No 11-E-28, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: In this paper, I investigate the cross-sectional determinants of corporate capital structure using a general equilibrium model with endogenous firm dynamics, a realistic tax environment, and financial frictions. I find that the equilibrium firm distribution in the model replicates fairly well the distribution of corporate capital structure as well as the relationship between capital structure, profitability, and firm size in the data. The key mechanisms here are economies of scale and two types of productivity shocks: persistent and transitory. The counterfactual experiment using the model implies, among other things, that tax benefits have relatively small effects on corporate capital structure choice compared with default costs and the costs of outside equity, including the dividend tax. It also reveals that the effects of those frictions on corporate capital structure choice are highly interrelated with each other.

Keywords: Corporate Capital Structure; Dynamic Trade-off Theory; Heterogeneous Firm Model (search for similar items in EconPapers)
JEL-codes: E22 G31 G32 (search for similar items in EconPapers)
Date: 2011-12
New Economics Papers: this item is included in nep-acc and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: A macroeconomic approach to corporate capital structure (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:11-e-28

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