The role of credit ratings on capital structure and its speed of adjustment: an international study
- 20 July 2017
- journal article
- research article
- Published by Taylor & Francis Ltd in The European Journal of Finance
- Vol. 24 (9), 735-760
- https://doi.org/10.1080/1351847x.2017.1354900
Abstract
Using an international dataset, we examine the role of issuers’ credit ratings in explaining corporate leverage and the speed with which firms adjust toward their optimal level of leverage. We find that, in countries with a more market-oriented financial system, the impact of credit ratings on firms’ capital structure is more significant and that firms with a poorer credit rating adjust more rapidly. Furthermore, our results show some striking differences in the speed of adjusting capital structure between firms rated as speculative and investment grade, with the former adjusting much more rapidly. As hypothesized, those differences are statistically significant only for firms based in a more market-oriented economy.Keywords
Funding Information
- General Research Fund (GRF), Research Grants Council, Hong Kong (LU13501214)
- Faculty Development Scheme (FDS) and Research Grants Council, Hong Kong (UGC/FDS14/B20/16)
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