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Corporate Capital Structure

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A Macroeconomic Approach To A Firm's Capital Structure, Mitsuru Katagiri Aug 2011

A Macroeconomic Approach To A Firm's Capital Structure, Mitsuru Katagiri

Publicly Accessible Penn Dissertations

In this paper, I investigate the logic behind cross sectional dispersion of firm's capital structure. I incorporate the trade off between tax benefits and financial distress costs into a dynamic general equilibrium model with heterogeneous firms and their endogenous entry/exit, and compute an equilibrium firm distribution.

The main findings are summarized as follows. First, I find that the equilibrium distribution approximates the dispersion of firms' capital structure well. Second, I find that it simultaneously accounts for the relationship of capital structure to profitability \textit{and} firm size. The key mechanisms are the difference in responses to persistent and ...