The effect of credit rating discontinuity on firms’ capital structure

• Autor(a) principal: Haverkamp, Christian
• Data de Publicação: 2023
• Tipo de documento: Dissertação
• Idioma: eng
• Título da fonte: Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)
• Texto Completo: http://hdl.handle.net/10400.14/42354
• topic: Credit rating; Rating discontinuity; Capital structure; Debt issuance; Equity issuance; Leverage; Cash holdings; Classificação de crédito; Descontinuidade de classificação de crédito; Estrutura de capital; Emissão de dívida; Emissão de ações; Alavancagem; Disponibilidade de tesouraria; Domínio/Área Científica::Ciências Sociais::Economia e Gestão

This dissertation compares rated and formerly rated firms regarding their capital structure. Using a panel dataset from 1991 to 2014, I estimate the effect of credit rating discontinuity on firms’ debt-to-equity issuance, leverage, net debt issuance, and cash holdings as proxies for their capital structure decisions. I use a set of OLS regressions with established control variables and employ time, firm, and industry fixed effects. The results suggest that we do observe rating discontinuity within this sample and that firms experiencing periods without S&P rating and continuously rated firms present differences in capital structure. Firms with rating discontinuity show lower debt-to-equity issuance, lower leverage, less net debt issuances, and higher cash holdings than continuously rated firms. These effects strengthen over time. However, this work cannot finally prove the existence of rating discontinuity. Without assuming that ratings from other CRAs are perfect substitutes for S&P ratings, there is still the possibility of other aspects, like issuer shopping, causing those differences in capital structure. Further, the findings suggest a small reputation effect on net debt issuance and leverage levels. The results are robust to changes in leverage definitions and the addition of rating and investment grade information to the models.