Flexible Prices and Leverage

77 Pages Posted: 28 Feb 2017

See all articles by Francesco D'Acunto

Francesco D'Acunto

Boston College

Ryan Liu

University of California, Berkeley

Carolin E. Pflueger

University of Chicago - Harris 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: February 09, 2017

Abstract

The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most exible-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 exible-price firms following the staggered implementation of the Interstate Banking and Branching Efficiency Act 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: E120, E440, G280, G320, G330

Suggested Citation

D'Acunto, Francesco and Liu, Ryan and Pflueger, Carolin E. and Weber, Michael, Flexible Prices and Leverage (February 09, 2017). CESifo Working Paper Series No. 6317. Available at SSRN: https://ssrn.com/abstract=2924446

Francesco D'Acunto

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Ryan Liu

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

Carolin E. Pflueger

University of Chicago - Harris 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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