Macroeconomic Conditions and Capital Raising

Abstract

Do macroeconomic conditions affect firms' abilities to raise capital? If so, how do they affect the manner in which the capital is raised? Using a large sample of publicly traded debt issues, seasoned equity offers, bank loans, and private placements of equity and debt, we find 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. Poor market conditions also affect the structure of securities offered, shifting them toward 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. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.