International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Capital Structure and the 2001 Recession
Richard H. Fosberg

The recession of 2001was somewhat different from the recession of the late 2000s in that it was not associated with a financial crisis. As might be expected, the effects of those two recessions on firm capital structure were significantly different. Fosberg (2012b) showed that the recession of the late 2000s caused firms, on average, to increase their MDRs (market debt ratio) by about 5.5%. It is shown here that the 2001 recession caused firms, on average, to decrease their MDRs by approximately .5% to 1%. The effect is even stronger in 2001 when capital structure is measured by BDR (book debt ratio). Using that measure, debt financing decreased, on average, by about 1.5% to 2%. Interestingly, the MDR change in 2001 was completely reversed by the end of 2002 but the BDR change was not.

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