Flexible Prices and Leverage

83 Pages Posted: 19 Jan 2017 Last revised: 3 Apr 2017

See all articles by Francesco D'Acunto

Francesco D'Acunto

Boston College

Ryan Liu


Carolin E. Pflueger

University of Chicago - Harris School of Public Policy; National Bureau of Economic Research (NBER)

Michael Weber

University of Chicago - Finance

Multiple version iconThere are 4 versions of this paper

Date Written: April 2, 2017


The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most flexible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital structure. Sticky-price firms increased leverage more than flexible-price firms following the staggered implementation of bank deregulation across states and over time, which we use in a difference-in-differences strategy. Firms' frequency of price adjustment did not change around the deregulation.

Keywords: Capital Structure, Nominal Rigidities, Bank Deregulation, Industrial Organization and Finance, Price Setting, Bankruptcy

JEL Classification: E12, E44, G28, G32, G33

Suggested Citation

D'Acunto, Francesco and Liu, Ryan and Pflueger, Carolin E. and Weber, Michael, Flexible Prices and Leverage (April 2, 2017). Robert H. Smith School Research Paper No. RHS 2901025. Available at SSRN: https://ssrn.com/abstract=2901025 or http://dx.doi.org/10.2139/ssrn.2901025

Francesco D'Acunto

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Ryan Liu

BlackRock ( email )

55 East 52nd Street
New York City, NY 10055
United States

Carolin E. Pflueger

University of Chicago - Harris School of Public Policy ( email )

1155 East 60th Street
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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