Quotation Yu, Jin, Halling, Michael , Zechner, Josef. 2011. Leverage Dynamics Over the Business Cycle. Finance Research Seminar, Norges Handelshøyskole, Bergen, Norwegen, 13.12.




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 18 countries. We find strong evidence for active capital structure management - especially during expansions. During recessions, speeds of adjustments become significantly slower implying that leverage management becomes more passive. Estimated overall (unconditional) book and market target leverage ratios behave counter-cyclically, except for firms from common law countries and countries, in which debtholders and shareholder are equally well protected. Our empirical evidence is strongly inconsistent with a random leverage hypothesis but, in contrast, documents the importance of demand-driven and supply-driven effects.


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Status of publication Published
Affiliation WU
Type of publication Unpublished lecture
Language English
Title Leverage Dynamics Over the Business Cycle
Event Finance Research Seminar
Location Norges Handelshøyskole, Bergen, Norwegen
Date Dec. 13, 2011


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