Is there a CSI-leverage nexus? |
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| Institution: | 1. Department of Accounting and Finance, College of Business Administration, Prince Mohammad Bin Fahad University, 617 Al Jawharah, Khobar, Dhahran 34754, Saudi Arabia;2. Department of Finance, Deakin Business School, Faculty of Business and Law, Deakin University, 221 Burwood Highway, Burwood, Vic 3125, Australia;3. Management and Humanities Department, Faculty of Science and Information Technology, Universiti Teknologi Petronas, Bandar Seri Iskandar 32610, Perak, Malaysia;4. Economics Finance and Marketing, College of Business and Law, RMIT University, 124 La Trobe Street, Melbourne, Vic 3000, Australia;1. Excelia Business School, La Rochelle, France;2. Suleman Dawood School of Business, Lahore University of Management Sciences, Lahore, Pakistan;3. Adnan Kassar School of Business, Lebanese American University, Beirut, Lebanon;1. Spears School of Business, Oklahoma State University, Stillwater, OK 74078, USA;2. Farmer School of Business, Miami University, Oxford, OH 45056, USA;1. Open Universiteit, the Netherlands;2. Auckland University of Technology, New Zealand;3. University of Adelaide, Australia;4. Nanjing University of Finance & Economics, China;1. SKEMA Business School – Université Côte d''Azur, France;2. Rennes School of Business, Rennes, France;3. DCU Business School, Dublin City University, Dublin, Ireland;4. IESEG School of Management, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France;5. Univ. Lille, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France;6. CNRS, UMR 9221 - LEM - Lille Économie Management, F-59000 Lille, France;1. Chongyang Institute for Financial Studies, Renmin University of China, 6th Floor, Culture Building, No.59 Zhongguancun Avenue, Haidian District, Beijing 100872, China;2. School of Finance, Renmin University of China, Room 812, Mingde Building, No. 59 Zhongguancun Avenue, Haidian District, Beijing 100872, China |
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| Abstract: | We examine how various measures of consumer sentiment index (CSI) affect firms' debt policy decisions. Using U.S. firm-level quarterly data from 1993 to 2017, we provide a strong positive relationship between CSI measures and corporate debt policy, implying that firms use external borrowing during a positive economic outlook and reap the tax-shield benefit. We also find that improved household optimism over financial and business sentiments leads to future household consumption. The CSI-leverage nexus is moderated by the state of firms' financial condition, reputation, and profitability. Importantly, our results are robust to sub-sample analysis, firm-level and macroeconomic controls, econometric specifications, alternative measures of sentiment including Shiller's cyclically adjusted price-earnings ratio (i.e., CAPE_SH), Baker and Wurgler (2006)’s stock market sentiment index (i.e., SENT_BW) and search-based uncertainty measure such as FEARS (i.e., Financial and Economic Attitudes Revealed by Search) index of Da, Engelberg, and Gao (2015). |
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