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Author : rutherfordking
Finance & Accounting
Pages 12 (3012 words)
Finance and Accounting Introduction The United States suffered a severe financial crisis in the first decade of the twenty-first century. Originating in the United States in 2007, the crisis had spread rapidly to the other parts of the world (Aubuchon and Wheelock, 2009)…
The capital structures of the companies were affected strongly since the availability of debt capital financing as well as equity capital financing declined considerably. Under influence of the financial crunch firms reduced security issuance and financial institutions reduced issuance of loans by a large extent (Fosberg, 2012). Among many consequences, the major consequence faced by the firms was in their capital structure. The defaults of mortgage loans led to significant increase in debt amount of the firm’s capital structure. Results of recent research show that between the years 2006 and 2008 the market debt ratio (MDR) of the firms increased on average by 5.5 percent (Fosberg, 2012). The financial crisis was supplemented by severe recession in the US economy which boosted the soaring market debt ratios of the firms. If the effect of recession is removed then debt accumulation of the firms solely due to the financial crisis has been found to be approximately 5.1 percent (Fosberg, 2012). This affirms the severity of the effect of the financial crisis on debt accumulation by the corporations and their capital structure. ...