2014 Annual Meeting of the Financial Management Association International, Nashville, Tennessee, USA, October 15-18, 2014
In this study we examine the role of external corporate credit ratings in explaining leverage and the speed of adjustment using an international dataset. We find that the impact of credit ratings on firms’ capital structures is more significant and negative in countries with more market-based oriented financial systems when quantified by a Financial Architecture variable (measuring the size, activity, and efficiency of a stock market compared to the banking system of the country annually), but not when measured by the traditional division into market-based and bank-based oriented countries. We find that companies with poorer credit ratings display a faster speed of adjustment towards a desired level of leverage. This happens regardless of the financial orientation of a country. The difference in adjusting capital structure between firms rated as speculative- and investment-grade is more pronounced in more market-oriented economies.
Accepted Author Manuscript
Wojewodzki, M., Firth M. A., & Poon, W. P. H. (2014, October). The role of credit ratings on capital structure and its speed of adjustment: preliminary evidence from 19 countries. Paper presented at the 2014 Annual Meeting of the Financial Management Association International, Nashville, Tennessee, USA, October 15-18, 2014