Does the Source of Capital Affect Capital Structure?

Posted: 29 Feb 2008

See all articles by Michael W. Faulkender

Michael W. Faulkender

University of Maryland - Robert H. Smith School of Business

Mitchell A. Petersen

Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Abstract

Prior work on leverage implicitly assumes capital availability depends solely on firm characteristics. However, market frictions that make capital structure relevant may also be associated with a firm's source of capital. Examining this intuition, we find firms that have access to the public bond markets, as measured by having a debt rating, have significantly more leverage. Although firms with a rating are fundamentally different, these differences do not explain our findings. Even after controlling for firm characteristics that determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35% more debt.

Keywords: fetus, heart rate, prenatal environment, prenatal drug exposure, cigarette smoking

Suggested Citation

Faulkender, Michael W. and Petersen, Mitchell A., Does the Source of Capital Affect Capital Structure?. Review of Financial Studies, Vol. 19, No. 1, pp. 45-79, 2006. Available at SSRN: https://ssrn.com/abstract=900708

Michael W. Faulkender (Contact Author)

University of Maryland - Robert H. Smith School of Business ( email )

College Park, MD 20742-1815
United States

Mitchell A. Petersen

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1281 (Phone)
847-491-5719 (Fax)

National Bureau of Economic Research (NBER) ( email )

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