Title

The role of credit ratings on capital structure and its speed of adjustment : an international study

Document Type

Journal article

Source Publication

European Journal of Finance

Publication Date

7-1-2017

Volume

Advance publication

First Page

1

Last Page

31

Publisher

Routledge

Keywords

capital structure, credit ratings, speed of adjustment

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.

DOI

10.1080/1351847X.2017.1354900

Print ISSN

1351847X

E-ISSN

14664364

Funding Information

Financially supported by research grants from the General Research Fund (GRF), Research Grants Council, Hong Kong (LU13501214) and the Faculty Development Scheme (FDS) and Research Grants Council, Hong Kong (UGC/FDS14/B20/16). {LU13501214, uGC/FDS14/B20/16}

Publisher Statement

Copyright © 2017 Informa UK Limited, trading as Taylor & Francis Group. Access to external full text or publisher's version may require subscription.

Full-text Version

Publisher’s Version

Language

English

Recommended Citation

Wojewodzki, M., Poon, W. P. H., & Shen, J. (2017). The role of credit ratings on capital structure and its speed of adjustment: An international study. European Journal of Finance, Advance publication, 1-31. doi: 10.1080/1351847X.2017.1354900

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