Does the Source of Capital Affect Capital Structure?

Michael Faulkender and Mitchell Petersen

The Review of Financial Studies, 2006, vol. 19, issue 1, 45-79

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. Copyright 2006, Oxford University Press.

Date: 2006
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Working Paper: Does the source of capital affect capital structure? (2003)
Working Paper: Does the Source of Capital Affect Capital Structure? (2003)
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