Episodic Stability in Capital Structure: The Role of Access to Credit

64 Pages Posted: 2 Aug 2018 Last revised: 4 Sep 2019

See all articles by Jess Cornaggia

Jess Cornaggia

Pennsylvania State University - Department of Finance

Mahsa Kaviani

Temple University - Department of Finance

Lawrence Kryzanowski

Concordia University, Quebec - John Molson School of Business

Hosein Maleki

Temple University, Fox School of Business

Date Written: August 1, 2018

Abstract

This study proposes a novel method based on within-zone leverage variations to measure the magnitude of stable leverage episodes at the firm level. Using this method, we investigate a leading candidate determinant of such episodes’ length: access to credit. Using a discontinuity approach with survival data, we find that firms just above the investment-grade rating cutoff enjoy significantly longer episodes of leverage stability than firms just below the cutoff. The results are stronger among firms with greater external finance dependence and financial constraints. Asymmetric disruptions in stable episodes are associated with a lower ability to raise debt among speculative-grade firms.

Keywords: capital structure stability, access to credit, credit market segmentation, credit ratings

JEL Classification: G24, G32

Suggested Citation

Cornaggia, Jess and Kaviani, Mahsa and Kryzanowski, Lawrence and Maleki, Hosein, Episodic Stability in Capital Structure: The Role of Access to Credit (August 1, 2018). Fox School of Business Research Paper No. 18-039. Available at SSRN: https://ssrn.com/abstract=3224748 or http://dx.doi.org/10.2139/ssrn.3224748

Jess Cornaggia

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Mahsa Kaviani (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

Lawrence Kryzanowski

Concordia University, Quebec - John Molson School of Business ( email )

1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1M8
Canada

Hosein Maleki

Temple University, Fox School of Business ( email )

Philadelphia, PA 19122
United States

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