Accession Number : ADA294239

Title :   Federal Budget Deficit Financing Effects On Firm's Choice Of Debt And Equity.

Descriptive Note : Master's thesis,

Corporate Author : AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH

Personal Author(s) : Dennedy, James H.

PDF Url : ADA294239

Report Date : 1995

Pagination or Media Count : 136

Abstract : Does debt financing of the deficit make equity financing for firms more attractive? Benjamin M. Friedman (1986) argues that it does. The model in this paper examined whether the predicted nominal quantity side of the financing story corresponds with the pricing results Friedman found. Without delving into substitutability and risk measurement issues, the thesis revealed the impact of the link between the government financing decision and the corporate financing decision. Government deficits, by themselves, crowd out all corporate financial instruments. Financing that deficit and debt with long term government bonds increases the severity of the crowding out effect. In contrast, however, short term financing can more than overcome the crowding out effects of budget deficits. Further, with the proper mix of long and short term instruments, the Treasury can exactly off set the crowding effects of deficits, rendering them portfolio neutral.

Descriptors :   *DECISION MAKING, *FINANCIAL MANAGEMENT, *PLANNING PROGRAMMING BUDGETING, *FEDERAL BUDGETS, PREDICTIONS, COST MODELS, ECONOMIC MODELS.

Subject Categories : Economics and Cost Analysis
      Government and Political Science

Distribution Statement : APPROVED FOR PUBLIC RELEASE