Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18295
Authors: 
Baum, Christopher F.
Stephan, Andreas
Talavera, Oleksandr
Year of Publication: 
2004
Series/Report no.: 
DIW Discussion Papers 443
Abstract: 
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.
Subjects: 
leverage
uncertainty
non-financial firms
panel data
JEL: 
D8
D92
G32
C23
Document Type: 
Working Paper

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