Credit Rating Changes and Leverage Adjustments: Concurrent or Continual?

Min Maung () and Reza H. Chowdhury ()
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Min Maung: Department of Finance and Management Science, University of Saskatchewan, Edwards School of Business, Saskatoon, SK S7N 5A7, Canada
Reza H. Chowdhury: University of Northern British Columbia, School of Business, 3333 University Way, Prince George, BC V2N 4Z9, Canada

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2014, vol. 17, issue 04, 1-29

Abstract: Prior research has shown that credit downgrades affect firm's capital structure decision. However, after adjusting for biases associated with the use of market debt ratio and after controlling for simultaneity between credit ratings and leverage, we find that rating upgrades also play a role in firms' leverage. Contrary to previously reported findings, our evidence also indicates that the effect of rating downgrades on capital structure lasts for more than just one year.

Keywords: Credit rating changes; leverage changes; simultaneous equations system; G30; G32 (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2014
References: View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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DOI: 10.1142/S0219091514500271

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