From my perspective, during an economic expansion, industrial production, employment, personal incomes and sales are increased excluding the inflation rate. To be more specific, companies buy new machines or build new factories to increase the production in this period and to expand the business, the company should finance the expansion either through debt or equity.
Therefore I thought Return on Equity (ROE) would be increased because companies borrow more debts, which leads the denominator of ROE formula, shareholders' equity, to be decreased and it results ROE to be increased.
However if the company finance their expansion by the equity, not through debt financing, then denominator of ROE formula, shareholders' equity would be increased therefore the ROE will be decreased.
Then during an economic expansion, how does the ROE will going to be changed, decreased or increased?