Credit Supply and Capital Structure Adjustments
Financial Management, 49(4), 949-972
51 Pages Posted: 7 Sep 2019 Last revised: 24 Oct 2022
Date Written: August 30, 2019
Using the staggered deregulation of the U.S. banking industry as a series of exogenous shocks, I study the effect of the credit supply on the speed of capital structure adjustment. I find robust evidence that interstate and intrastate banking deregulation are positively associated with leverage adjustments. Specifically, the speeds of adjustment to target leverage are faster in the post-deregulation periods. I also find that the positive effect is driven by firms that are financially constrained, are financially dependent on banks, and have less access to the public debt market and by deregulated banks’ ability to geographically diversify the credit risk.
Keywords: Capital Structure dynamics, banking deregulation, speed of adjustment
JEL Classification: G21, G32
Suggested Citation: Suggested Citation