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Security issuance and the business cycle

Author

Listed:
  • Enzo Dia

    (Università degli Studi di Milano-Bicocca)

  • Fabrizio Casalin

    (Newcastle University Business School)

Abstract

We use a simple model of investment and external finance to analyze the relationship among the issuance of securities, financial market valuations and, alternatively, aggregate investment or cash flows. We find that issuance is driven by market valuations, and does not influence aggregate investment, whereas investment has a negative impact on equity issuance. Moreover, we obtain widespread evidence that equity and debt are complementary sources of finance, and that positive shocks to cash flows are associated with larger issuance of debt.

Suggested Citation

  • Enzo Dia & Fabrizio Casalin, 2013. "Security issuance and the business cycle," Economics Bulletin, AccessEcon, vol. 33(3), pages 1751-1761.
    • Handle: RePEc:ebl:ecbull:eb-13-00362
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I3-P164.pdf
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    References listed on IDEAS

    as
    1. Robert E. Hall, 2001. "The Stock Market and Capital Accumulation," American Economic Review, American Economic Association, vol. 91(5), pages 1185-1202, December.
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    3. Malcolm Baker & Jeffrey Wurgler, 2000. "The Equity Share in New Issues and Aggregate Stock Returns," Journal of Finance, American Finance Association, vol. 55(5), pages 2219-2257, October.
    4. Francisco Covas & Wouter J. Den Haan, 2011. "The Cyclical Behavior of Debt and Equity Finance," American Economic Review, American Economic Association, vol. 101(2), pages 877-899, April.
    5. François Derrien & Ambrus Kecskes, 2009. "How Much Does Investor Sentiment Really Matter for Equity Issuance Activity?," Post-Print hal-00459766, HAL.
    6. Ivanov, Vladimir & Lewis, Craig M., 2008. "The determinants of market-wide issue cycles for initial public offerings," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 567-583, December.
    7. Ľuboš Pástor & Pietro Veronesi, 2005. "Rational IPO Waves," Journal of Finance, American Finance Association, vol. 60(4), pages 1713-1757, August.
    8. Evgeny Lyandres & Le Sun & Lu Zhang, 2008. "The New Issues Puzzle: Testing the Investment-Based Explanation," The Review of Financial Studies, Society for Financial Studies, vol. 21(6), pages 2825-2855, November.
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    Cited by:

    1. Enzo Dia & Marco Rispoli, 2022. "Investment, Implicit Debt Targets and Debt Maturity," CRANEC - Working Papers del Centro di Ricerche in Analisi economica e sviluppo economico internazionale crn2204, Università Cattolica del Sacro Cuore, Centro di Ricerche in Analisi economica e sviluppo economico internazionale (CRANEC).

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    More about this item

    Keywords

    Equity; Debt; Investment; Tobin's q;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G0 - Financial Economics - - General

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