The Role of Credit Ratings on Capital Structure and Its Speed of Adjustment: An International Study

Michal Wojewodzki, Winnie P.H. Poon & Jianfu Shen (2018) The role of credit ratings on capital structure and its speed of adjustment: an international study, The European Journal of Finance, 24:9, 735-760, DOI: 10.1080/1351847X.2017.1354900

27 Pages Posted: 19 Nov 2020 Last revised: 10 Jul 2022

See all articles by Michal Wojewodzki

Michal Wojewodzki

The Hang Seng University of Hong Kong

Winnie P.H. Poon

Lingnan University, Hong Kong

Jianfu Shen

The Hong Kong Polytechnic University

Date Written: July 4, 2017

Abstract

Using an international data set, we examine the role of issuers’ credit ratings in explaining corporate leverage and the speed with which firms adjust toward their optimal level of leverage. We find that, in countries with a more market-oriented financial system, the impact of credit ratings on firms’ capital structure is more significant and that firms with a poorer credit rating adjust more rapidly. Furthermore, our results show some striking differences in the speed of adjusting capital structure between firms rated as speculative and investment grade, with the former adjusting much more rapidly. As hypothesized, those differences are statistically significant only for firms based in a more market-oriented economy.

Keywords: capital structure, credit ratings, speed of adjustment

JEL Classification: G32, G24, G15

Suggested Citation

Wojewodzki, Michal and Poon, Winnie P.H. and Shen, Jianfu, The Role of Credit Ratings on Capital Structure and Its Speed of Adjustment: An International Study (July 4, 2017). Michal Wojewodzki, Winnie P.H. Poon & Jianfu Shen (2018) The role of credit ratings on capital structure and its speed of adjustment: an international study, The European Journal of Finance, 24:9, 735-760, DOI: 10.1080/1351847X.2017.1354900, Available at SSRN: https://ssrn.com/abstract=3703469

Michal Wojewodzki (Contact Author)

The Hang Seng University of Hong Kong ( email )

Hang Shin Link
Siu Lek Yuen
Shatin, Hong Kong
China
39635232 (Phone)
N/A (Fax)

HOME PAGE: http://https://sites.google.com/view/michalwojewodzki/home

Winnie P.H. Poon

Lingnan University, Hong Kong ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
852 2616 8179 (Phone)
852 2616 5326 (Fax)

Jianfu Shen

The Hong Kong Polytechnic University ( email )

Hung Hom
Koowloon, 000000
Hong Kong

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