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Does the Source of Capital Affect Capital Structure?

Does the Source of Capital Affect Capital Structure? Prior work on leverage implicitly assumes capital availability depends solely on firm characteristics. However, market frictions that make capital structure relevant may also be associated with a firm’s source of capital. Examining this intuition, we find firms that have access to the public bond markets, as measured by having a debt rating, have significantly more leverage. Although firms with a rating are fundamentally different, these differences do not explain our findings. Even after controlling for firm characteristics that determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35% more debt. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Review of Financial Studies Oxford University Press

Does the Source of Capital Affect Capital Structure?

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Publisher
Oxford University Press
Copyright
© The Author 2005. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.
ISSN
0893-9454
eISSN
1465-7368
DOI
10.1093/rfs/hhj003
Publisher site
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Abstract

Prior work on leverage implicitly assumes capital availability depends solely on firm characteristics. However, market frictions that make capital structure relevant may also be associated with a firm’s source of capital. Examining this intuition, we find firms that have access to the public bond markets, as measured by having a debt rating, have significantly more leverage. Although firms with a rating are fundamentally different, these differences do not explain our findings. Even after controlling for firm characteristics that determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35% more debt.

Journal

The Review of Financial Studies – Oxford University Press

Published: Oct 28, 2006

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