Journal ArticleDOI
Do Firms Target Credit Ratings or Leverage Levels
TLDR
This article showed that firms downgraded to speculative grade ratings are about twice as likely to reduce debt as other firms, and the effect of a downgrade is larger at downgrades to a speculative grade rating and if commercial paper access is affected.Abstract:
Firms reduce leverage following credit rating downgrades. In the year following a downgrade, downgraded firms issue approximately 1.5%–2.0% less net debt relative to net equity as a percentage of assets compared to other firms. This relationship persists within an empirical model of target leverage behavior. The effect of a downgrade is larger at downgrades to a speculative grade rating and if commercial paper access is affected. In particular, firms downgraded to speculative are about twice as likely to reduce debt as other firms. Rating upgrades do not affect subsequent capital structure activity, suggesting that firms target minimum rating levels.read more
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Posted Content
Does Credit Competition Affect Small-Firm Finance?
TL;DR: The authors found that in states more open to branching, small firms borrow at interest rates 25 to 45 basis points lower than firms operating in less open states, and that firms in open states also were more likely to borrow from banks.
Journal ArticleDOI
Does Credit Competition Affect Small-Firm Finance?
Tara Rice,Philip E. Strahan +1 more
Abstract: While relaxation of geographical restrictions on bank expansion permitted banking organizations to expand across state lines, it allowed states to erect barriers to branch expansion. These differences in states' branching restrictions affect credit supply. In states more open to branching, small firms borrow at interest rates 80 to 100 basis points lower than firms operating in less open states. Firms in open states also are more likely to borrow from banks. Despite this evidence that interstate branch openness expands credit supply, we find no effect of variation in state restrictions on branching on the amount that small firms borrow.
Journal ArticleDOI
Tiebreaker: Certification and Multiple Credit Ratings
TL;DR: In this article, the economic role of credit rating agencies in the corporate bond market is explored and three existing theories about multiple ratings: information production, rating shopping, and regulatory certification.
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Do regulations based on credit ratings affect a firm's cost of capital?*
TL;DR: In this article, the SEC certified a fourth credit rating agency, Dominion Bond Rating Service (DBRS), for use in bond investment regulations, and showed that bond yields change in the direction implied by the firm's DBRS rating relative to its ratings from other certified rating agencies.
Journal ArticleDOI
How stable are corporate capital structures
Harry DeAngelo,Richard Roll +1 more
TL;DR: In this article, the authors compare the relative stability of different leverage cross-sections more than a few years apart, with similarities evaporating as the time between them lengthens, showing that capital structure stability is the exception, not the rule, occurs primarily at low leverage, and is virtually always temporary.
References
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Journal ArticleDOI
A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity
TL;DR: In this article, a parameter covariance matrix estimator which is consistent even when the disturbances of a linear regression model are heteroskedastic is presented, which does not depend on a formal model of the structure of the heteroSkewedness.
Journal ArticleDOI
Risk, Return, and Equilibrium: Empirical Tests
Eugene F. Fama,James D. MacBeth +1 more
TL;DR: In this article, the relationship between average return and risk for New York Stock Exchange common stocks was tested using a two-parameter portfolio model and models of market equilibrium derived from the two parameter portfolio model.
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Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches
TL;DR: In this article, the authors examine the different methods used in the literature and explain when the different approaches yield the same (and correct) standard errors and when they diverge, and give researchers guidance for their use.
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What Do We Know about Capital Structure? Some Evidence from International Data
Raghuram G. Rajan,Luigi Zingales +1 more
TL;DR: In this paper, the authors investigate the determinants of capital structure choice by analyzing the financing decisions of public firms in the major industrialized countries and find that factors identified by previous studies as correlated in the cross-section with firm leverage in the United States, are similarly correlated in other countries as well.
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The theory and practice of corporate finance: Evidence from the field
TL;DR: The authors survey 392 CFOs about the cost of capital, capital budgeting, and capital structure and find some support for the pecking-order and trade-off capital structure hypotheses but little evidence that executives are concerned about asset substitution, asymmetric information, transactions costs, free cash flows, or personal taxes.