Debt Structure and Credit Ratings

Mascia Bedendo and Linus Siming

No 1622, BAFFI CAREFIN Working Papers from BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy

Abstract: We investigate whether a ?rm’s debt structure can act as a mitigating factor to the negative e?ects of a corporate rating downgrade. Speci?cally, we study how a ?rm’s relative mix of bank and non-bank ?nancing a?ects its stock market valuation and leverage adjustment following a downgrade. We document that, in the high-yield segment, companies with a larger proportion of bank debt su?er less from the distorting e?ects of rating downgrades, as they: (i) experience less negative abnormal stock returns around the event; (ii) reduce their market leverage less than peers that rely more on other sources of debt. Our ?ndings con?rm the bene?ts of bank ?nancing for risky ?rms and provide a number of new insights into how debt structure a?ects ?rm value and capital structure decisions over and above the information directly embedded in credit ratings.

Keywords: Credit rating agencies; Market reaction; Debt structure (search for similar items in EconPapers)
JEL-codes: G14 G24 G32 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2016
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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