Firms’ financing behavior on the edge of credit rating categories

• Autor(a) principal: Faist, Dominik
• Data de Publicação: 2022
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/40824
• topic: Credit rating; Capital structure; CR-CS hypothesis; Financing behavior; Leverage; Rating de crédito; Estrutura de capital; Hipótese CR-CS; Comportamento do financiamento; Alavancagem; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

Traditional capital structure theories are broadly known and there exists countless literature going back to the late 1950s. On the other hand, only about two decades ago, surveys pointed out the significance of credit ratings in capital structure decision making. Subsequent formal literature suggests that credit ratings bear certain costs and benefits, thus firms try to achieve or maintain certain ratings. This paper contributes to the current literature by testing firms’ financing behavior on the edge of credit rating categories on the most recent data. If higher credit ratings are somehow beneficial for firms, I expect that firms close to a change issue less net debt relative to net equity to increase (decrease) their chances for an upgrade (downgrade). I find that firms close to a change into a lower rating category, issue 0.51% less net debt relative to net equity as a percentage of total assets. Also, firms are more sensitive to a downgrade than to an upgrade into a new rating category. But, in general, it’s hard to find consistent evidence throughout all the samples. My results are driven by large equity offerings, and not by small to-medium-sized debt offerings as the hypothesis suggests, thus are dependent on the sample construction.