Skip to main content
Article thumbnail
Location of Repository

London Business School

By Isil Erel, Woojin Kim, Michael S. Weisbach, Christopher Hennessy, Mark Huson, Mike Lemmon, Gordon Phillips, Per Stromberg and Rene Stulz

Abstract

Economic theory, as well as commonly-stated views of practitioners, suggests that market downturns can affect both the ability and manner in which firms raise external financing. Theory suggests that downturns should be associated with a shift toward less information-sensitive securities, as well as a “flight to quality”, in which firms can issue high-rated securities but not low-rated ones. We evaluate these hypotheses on a large sample of publicly-traded debt issues, seasoned equity offers, and bank loans. We find that market downturns lead firms to use less information-sensitive securities. In addition, poor market conditions affect the structure of securities offered, shifting them towards shorter maturities and more security. Furthermore, market conditions affect the quality of securities offered, with worsening conditions substantially lowering the number of low-rated debt issues. Overall, these findings sugges

Year: 2009
OAI identifier: oai:CiteSeerX.psu:10.1.1.363.8535
Provided by: CiteSeerX
Download PDF:
Sorry, we are unable to provide the full text but you may find it at the following location(s):
  • http://citeseerx.ist.psu.edu/v... (external link)
  • http://fisher.osu.edu/fin/facu... (external link)
  • Suggested articles


    To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.