Resource title

Macroeconomic Uncertainty and Firm Leverage

Resource image

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Resource description

This paper investigates the link between the optimal level of non-financial firms' leverage and macroeconomic uncertainty. We develop a structural model of a firm's value maximization problem that predicts that as macroeconomic uncertainty increases the firm will decrease its optimal level of borrowing. We test this proposition using a panel of non-financial US firms drawn from the COMPUSTAT quarterly database covering the period 1991-2001. The estimates confirm that as macroeconomic uncertainty increases, firms decrease their levels of leverage. Furthermore, we demonstrate that our results are robust with respect to the inclusion of the index of leading indicators.

Resource author

Christopher F. Baum, Andreas Stephan, Oleksandr Talavera

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18295

Resource license

Adapt according to the presented license agreement and reference the original author.