Uncertainty Shocks, Equity Financing, and Business Cycle Amplifications
2017/02/22
研討會日期 : 2017-02-22
時間 : 14:30
主講人 : Mr. Jongho Park
主持人 : Professor Hsuan-Chih Lin
地點 : Conference Room B110
演講者簡介 : Mr. Park will receive his Ph.D. in Economics from University of Maryland in 2017. His research fields are Macroeconomics, International Finance, and Corporate Finance. He is applying for a position of the Institute of Economics, Academia Sinica now.
演講摘要 : I propose a transmission mechanism linking uncertainty shocks to macroeconomic variables through firms’ financing decisions, with an emphasis on the role of equity financing. When uncertainty is high, equity issuance is limited, as firms are less likely to generate positive profits, and are more tempted to divert profits. As a result, external equity financing shrinks, and this generates additional amplification since total equity financing decreases. Based on this mechanism, I address two questions. First, how are equity financing decisions and associated agency costs affected by uncertainty shocks, and amplify the response of macroeconomic variables to uncertainty shocks? I build a DSGE financial accelerator model with both debt and equity financing that generates amplification of macroeconomic variables in response to uncertainty shocks. The troughs of macroeconomic variables generated by my model are approximately 30 percent deeper compared to a standard model with only a debt contract. An important implication of the amplification is that it allows the model to predict procyclical debt and equity financing, and countercyclical external financing costs which existing models are unable to explain. Second, how does uncertainty affect corporate firms’ equity financing decisions empirically? Using balance sheet data of U.S. listed firms from 1993 to 2014, I find that a one standard deviation increase in the level of uncertainty is associated with a 0.7 percentage point decrease in the ratio of equity financing to total assets.
