We show that business cycle dynamics and, in particular, the cyclicality of a firm's growth opportunities, determine the value of cash holdings. Cash is more valuable for firms with relatively more attractive growth opportunities in bad states of the business cycle. Cash holdings provide the...

Using a dynamic model of financing, investment, and macroeconomic risk, we investigate when firms sell assets to fund investments (financing asset sales) across the business cycle. Equity financed investment transfers wealth from equity to debt because asset volatility declines and earnings...

We use a dynamic framework and panel methodology to investigate the determinants of a firms' time-varying capital structure. Our sample comprises 706 European firms from France, Germany, Italy and the U.K. over the period from 1983 to 2002. If capital structure adjustment is costly, firms may...