I thank Professor Tom Smith and Dr Barry Oliver for valuable comments. This project was funded by the CIGS/FASIGS SA10 and RF10.
Capital structure and business cycles
Article first published online: 7 JUN 2011
© 2011 The Author. Accounting and Finance © 2011 AFAANZ
Accounting & Finance
Volume 52, Issue Supplement s1, pages 25–48, October 2012
How to Cite
Akhtar, S. (2012), Capital structure and business cycles. Accounting & Finance, 52: 25–48. doi: 10.1111/j.1467-629X.2011.00425.x
- Issue published online: 5 OCT 2012
- Article first published online: 7 JUN 2011
- Received 24 March 2011; accepted 5 May 11 by Robert Faff (Editor).
- Capital structure;
- Business cycle;
- Firm fixed effects;
- Unobserved permanent component
This study investigates the relationship between business cycles and capital structure. Specifically, it extends the work of Lemmon et al. (2008), by incorporating the effect of four different stages of the business cycle – peak, contraction, trough and expansion – on the relative importance of the unobserved permanent component of the capital structure. Results indicate that business cycles play an important role in explaining the unobserved permanent component of leverage ratios after controlling for firm fixed effects. In particular, the model becomes much stronger in explaining the variation in leverage ratios after accounting for business cycle phases.