Capital Structure and Systematic Risk

Capital Structure and Systematic Risk

By Michael Schwert, Ilya A. Strebulaev
April 6,2014

Systematic risk is an important determinant of corporate capital structure. A one standard deviation increase in asset beta corresponds to a decrease in leverage of 13%, controlling for total asset volatility. This evidence is consistent with recent dynamic capital structure models that relate financing decisions to macroeconomic factors and provides further impetus for exploring the impact of systematic risk on corporate decisions.