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Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms
Mathematics, Volume: 10, Issue: 7, Start page: 1119
Swansea University Author:
Fabio Caraffini
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© 2022 by the authors. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license
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DOI (Published version): 10.3390/math10071119
Abstract
Using an unbalanced panel of 922 non-financial companies publicly listed on the London Stock Exchange during January 1995 and September 2014, this article tests the predictions of Pecking Order Theory (POT), Trade-off Theory (TOT) and Market Timing Theory (MTT) of capital structure through the lens...
Published in: | Mathematics |
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ISSN: | 2227-7390 |
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MDPI AG
2022
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URI: | https://cronfa.swan.ac.uk/Record/cronfa60902 |
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2022-09-23T12:20:25.8573202 v2 60902 2022-08-28 Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms d0b8d4e63d512d4d67a02a23dd20dfdb 0000-0001-9199-7368 Fabio Caraffini Fabio Caraffini true false 2022-08-28 SCS Using an unbalanced panel of 922 non-financial companies publicly listed on the London Stock Exchange during January 1995 and September 2014, this article tests the predictions of Pecking Order Theory (POT), Trade-off Theory (TOT) and Market Timing Theory (MTT) of capital structure through the lens of macroeconomic conditions. We find strong evidence that leverage is negatively associated with the business cycle but positively related to stock market performance, which is consistent with POT. In addition, leverage is negatively related to financial market risk, as predicted by TOT. Furthermore, leverage is positively related to credit supply, which is in line with both the POT and TOT. Finally, there is no evidence in support of MTT. The above results are robust with respect to the measurement of macroeconomic variables, the choice of estimation methods and the inclusion of a dummy variable to account for the effect of the 2008 financial crisis. An important implication is that, because firms tend to be highly levered during business cycle downturns, expansionary fiscal and monetary policies to encourage more business borrowings may not be effective after all. Journal Article Mathematics 10 7 1119 MDPI AG 2227-7390 capital structure; macroeconomic conditions; firm-specific variables; pecking order theory; trade-off theory; market timing theory 31 3 2022 2022-03-31 10.3390/math10071119 COLLEGE NANME Computer Science COLLEGE CODE SCS Swansea University This research received no external funding 2022-09-23T12:20:25.8573202 2022-08-28T18:55:42.2249325 Faculty of Science and Engineering School of Mathematics and Computer Science - Computer Science Elmina Homapour 0000-0001-9756-2744 1 Larry Su 0000-0001-8285-5122 2 Fabio Caraffini 0000-0001-9199-7368 3 Francisco Chiclana 0000-0002-3952-4210 4 60902__25199__a08987309513410581b5095e8f3696f2.pdf 60902_VoR.pdf 2022-09-23T12:17:56.4240220 Output 544959 application/pdf Version of Record true © 2022 by the authors. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license true eng https://creativecommons.org/licenses/by/4.0/ |
title |
Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms |
spellingShingle |
Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms Fabio Caraffini |
title_short |
Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms |
title_full |
Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms |
title_fullStr |
Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms |
title_full_unstemmed |
Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms |
title_sort |
Regression Analysis of Macroeconomic Conditions and Capital Structures of Publicly Listed British Firms |
author_id_str_mv |
d0b8d4e63d512d4d67a02a23dd20dfdb |
author_id_fullname_str_mv |
d0b8d4e63d512d4d67a02a23dd20dfdb_***_Fabio Caraffini |
author |
Fabio Caraffini |
author2 |
Elmina Homapour Larry Su Fabio Caraffini Francisco Chiclana |
format |
Journal article |
container_title |
Mathematics |
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10 |
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7 |
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1119 |
publishDate |
2022 |
institution |
Swansea University |
issn |
2227-7390 |
doi_str_mv |
10.3390/math10071119 |
publisher |
MDPI AG |
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Faculty of Science and Engineering |
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Faculty of Science and Engineering |
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Faculty of Science and Engineering |
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School of Mathematics and Computer Science - Computer Science{{{_:::_}}}Faculty of Science and Engineering{{{_:::_}}}School of Mathematics and Computer Science - Computer Science |
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description |
Using an unbalanced panel of 922 non-financial companies publicly listed on the London Stock Exchange during January 1995 and September 2014, this article tests the predictions of Pecking Order Theory (POT), Trade-off Theory (TOT) and Market Timing Theory (MTT) of capital structure through the lens of macroeconomic conditions. We find strong evidence that leverage is negatively associated with the business cycle but positively related to stock market performance, which is consistent with POT. In addition, leverage is negatively related to financial market risk, as predicted by TOT. Furthermore, leverage is positively related to credit supply, which is in line with both the POT and TOT. Finally, there is no evidence in support of MTT. The above results are robust with respect to the measurement of macroeconomic variables, the choice of estimation methods and the inclusion of a dummy variable to account for the effect of the 2008 financial crisis. An important implication is that, because firms tend to be highly levered during business cycle downturns, expansionary fiscal and monetary policies to encourage more business borrowings may not be effective after all. |
published_date |
2022-03-31T04:19:24Z |
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1763754287196798976 |
score |
11.021648 |