Quotation Halling, Michael, Yu, Jin, Zechner, Josef. 2011. Leverage Dynamics over the Business Cycle. Research Seminar, University of Melbourne, 12.04.




There remains broad disagreement about what the important drivers of capital structure dynamics are. This paper sheds new light on this question by studying the business cycle dynamics of leverage ratios, using a comprehensive sample of firms from 19 countries. Our main finding is that book leverage evolves pro-cyclically but market leverage counter-cyclically. This empirical pattern is difficult to reconcile with any single theoretical capital structure model. We also find that leverage dynamics are dramatically different for financially constrained and unconstrained firms and that the origin of law, as a proxy for the development of public markets, matters. Finally, we find that leverage adjusts more slowly to target levels during recessions and that this effect is amplified for firms from civil law countries.


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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Unpublished lecture
Language English
Title Leverage Dynamics over the Business Cycle
Event Research Seminar
Location University of Melbourne
Date April 12, 2011


Zechner, Josef (Details)
Halling, Michael (University of Utah, United States/USA)
Yu, Jin (University of New South Wales, Australia)
Institute for Finance, Banking and Insurance IN (Details)
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