Macroeconomic Conditions and Capital Raising
Do macroeconomic conditions affect firms' abilities to raise capital? If so, how do they affect the manner in which the capital is raised? We address these questions using a large sample of publicly-traded debt issues, seasoned equity offers, bank loans and private placements of equity and debt. Our results suggest that a borrower's credit quality significantly affects its ability to raise capital during macroeconomic downturns. For noninvestment-grade borrowers, capital raising tends to be procyclical while for investment-grade borrowers, it is countercyclical. Moreover, proceeds raised by investment grade firms are more likely to be held in cash in recessions than in expansions. Poor market conditions also affect the structure of securities offered, shifting them towards shorter maturities and more security. Overall, our results suggest that macroeconomic conditions influence the securities that firms issue to raise capital, the way in which these securities are structured and indeed firms' ability to raise capital at all. This influence likely occurs primarily through the effect of macroeconomic conditions on the supply of capital.
We would like to thank Effi Benmelech, Murillo Campello, Naveen Daniel, Mike Faulkender, John Graham, Campbell Harvey, Christopher Hennessy, Mark Huson, Mike Lemmon, Laura Liu, Gordon Phillips, Matt Spiegel, Per Stromberg, René Stulz, Ralph Walkling, and an anonymous referee, as well as seminar participants at The 2009 AFA Meetings, University of Alberta, Carnegie Mellon University, University of Cincinnati, Drexel University, Harvard University, Hong Kong University of Science and Technology, KDI School of Public Policy and Management, Korea University, University of Illinois, NBER, Ohio State University, Oxford University, Seoul National University, Southern Methodist University, Stockholm School of Economics, University of Utah, Washington University, and Yale University for very helpful suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Isil Erel & Brandon Julio & Woojin Kim & Michael S. Weisbach, 2012. "Macroeconomic Conditions and Capital Raising," Review of Financial Studies, Society for Financial Studies, vol. 25(2), pages 341-376. citation courtesy of