Credit Market Segmentation and Capital Structure Stability
63 Pages Posted: 2 Aug 2018 Last revised: 26 Nov 2018
Date Written: August 1, 2018
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: Suggested Citation