Capital Structure and Macroeconomic Conditions: Evidence from Canada

Abstract

This paper examines the impact of macroeconomic conditions on the capital structure adjustment speed. Using a sample of Canadian firms listed on the Toronto Stock Exchange between 1981 and 2020, I document that firms adjust their capital structure to the target more rapidly in good macroeconomic conditions than in bad macroeconomic conditions. Alternative estimation methods of macroeconomic conditions are considered, but the results stay the same. The results are also robust to different industry categories and different classifications of years into good and bad macroeconomic states.