ABSTRACT
This chapter examines the existing theoretical and empirical literature which explores the influence of the macroeconomy upon the corporate capital structure. The capital structure measure to be modelled throughout the analysis is the debt-to-debt-plus-equity ratio, the debt constituent of which is defined as all loans repayable in more than one year, and the equity constituent is the historical market value of equity at a specified date. The rate of inflation exerts a significant influence upon the long-run or strategic capital structure decision of the firm due to the extremely pervasive impact of inflation upon corporate and financial economies. Medium-term interest rates appear to exert a significant influence upon the long-run or strategic capital structure decision of the firm. The only significant macroeconomic environment influences upon the strategic capital structure decision appear to be inflation and medium-term interest rates, although it is argued that the latter’s influence is intrinsically bound together with the.
