Stock Price Volatility And Firm Capital Structure Decisions During The Financial Crisis

Transcript

Financial economics research establishes that there is a link between the stock price volatility of a firm and its capital structure decisions. We hypothesize that this relationship would become especially critical during periods of stress such as periods with heightened stock price volatility and diminished opportunities of debt financing (i.e. during a credit crunch). Towards that end, in this study we build on our previous theoretical and empirical work about the relationship between stock price volatility and capital structure at the firm level by specifically investigating the capital structure decisions and borrowing costs of publicly traded firms during the most recent financial crisis, i.e. 2007-2009.