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Dr. Mohsin Khawaja
IBA faculty co-authors a paper on how economic policy uncertainty affects firms’ frequency and their choice of financial instruments to raise capital

Dr. Mohsin Khawaja, Assistant Professor, Department of Finance, School of Business Studies (SBS), co-authored a paper titled, ‘Raising capital amid economic policy uncertainty: an empirical investigation’. The research paper falls under the ‘W’ category and is published in the Journal of Financial Innovation.

Abstract:

This paper investigates how economic policy uncertainty affects firms’ frequency and their choice of financial instruments to raise capital. By applying a three-step sequential framework over a sample of 6834 publicly listed US non-financial firms, we find that during periods of high economic uncertainty, firms raise capital more frequently with a preference toward debt financing. The empirical findings suggest that firms prefer debt financing over equity financing to avoid ownership dilution and high equity premia. The rise in leverage during periods of high economic uncertainty highlights the importance of scrutinizing policy tools used to stabilize the economy during such times.

The paper can be accessed here