Firm financing over the business cycle

Juliane Begenau, Juliana Salomao

Research output: Contribution to journalArticle

5 Scopus citations


Data from U.S. public firms show that in booms large firms finance with debt and payout equity, whereas small firms issue both equity and debt. Therefore, large firms generally substitute between debt and equity financing over the business cycle, whereas small firms adhere to a procyclical financing policy for debt and equity. We explain these cyclical financing patterns quantitatively using a heterogeneous firm model with endogenous firm dynamics. We find that cross-sectional differences in investment returns and, therefore, funding needs and exposures to financial frictions are essential to understanding how firms' financing policies respond to macroeconomic shocks.

Original languageEnglish (US)
Pages (from-to)1235-1274
Number of pages40
JournalReview of Financial Studies
Issue number4
StatePublished - Jan 1 2019


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