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Firm Size, Capital Investment, and Debt Financing over Industry Business Cycles

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  • Kumar, Praveen
  • Yerramilli, Vijay

Abstract

We find that capital investment and net debt issuance of large firms are, on average, more sensitive to industry business cycles than those of small firms, in stark contrast to the effect of size on investment sensitivity to macroeconomic cycles. We theoretically examine the role of firm size on firms’ responses to industry shocks. Consistent with our theoretical predictions, we find that large firms exhibit greater sensitivity to industry cycles than small firms in their investment and net debt issuance only in industries with low cyclical variability of markups and production growth, high fixed cost intensity, high market-to-book, and high markups.

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  • Kumar, Praveen & Yerramilli, Vijay, 2025. "Firm Size, Capital Investment, and Debt Financing over Industry Business Cycles," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 60(1), pages 524-550, February.
    • Handle: RePEc:cup:jfinqa:v:60:y:2025:i:1:p:524-550_15
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