Work

Raising capital amid economic policy uncertainty: an empirical investigation

Year: 2022

Type: article

Abstract: This paper investigates how economic policy uncertainty affects firms' frequency and their choice of financial instruments to raise capital. By applying a three-step sequential framework over a sample of 6834 publicly listed US non-financial firms, we find that during periods of high economic uncertainty, firms raise capital more frequently with a preference toward debt financing. The empirical findings suggest that firms prefer debt financing over equity financing to avoid ownership dilution and high equity premia. The rise in leverage during periods of high economic uncertainty highlights the importance of scrutinizing policy tools used to stabilize the economy during such times.

Source: Financial Innovation

DOI: 10.1186/s40854-022-00379-w

Authors: Dawood Ashraf, Mohsin Khawaja, M. Ishaq Bhatti

Institutions: Islamic Research and Training Institute, Institute of Business Administration Karachi, La Trobe University, S P Jain School of Global Management

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: diamond

Funder: La Trobe University