Credit Market Segmentation and Capital Structure Stability

63 Pages Posted: 2 Aug 2018 Last revised: 26 Nov 2018

See all articles by Mahsa Kaviani

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 paper studies the impacts of capital market segmentation due to credit ratings on the stability of corporate capital structures. We provide novel empirical methods for measuring capital structure stability and identifying the effect of capital market segmentation on it. Comparing the matched firms just above and just below the investment-grade cutoff, we show that the investment-grade firms maintain more stable capital structures. This effect does not exist at other credit rating thresholds. The investment-grade firms' better access to capital can drive the results. The results persist within conventional methods for measuring leverage stability.

Keywords: credit market segmentation, capital structure, capital structure stability

JEL Classification: G24, G32

Suggested Citation

Kaviani, Mahsa and Kryzanowski, Lawrence and Maleki, Hosein, Credit Market Segmentation and Capital Structure Stability (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

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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