Purpose – The main purpose of this paper is to empirically examine how firm-specific (idiosyncratic) and macroeconomic risks affect the external financing decisions of UK manufacturing firms. The paper also explores the effect of both types of risk on firms' debt versus equity choices....

Purpose – This paper aims to theorize that if risk affects costs and benefits of capital structure adjustments, then it should affect the speed at which firms adjust their leverage toward the target. To investigate this hypothesis, the author empirically examines the role of firm-specific and...

We propose a theory of optimal firm financing given nested information problems of adverse selection and agency cost. We prove that there exists a unique perfect Bayesian equilibrium with novel features: First, three types of optimal contracts arise endogenously, i.e., equity, transparent debt...