Cross-country variations in capital structure adjustment—The role of credit ratings
نویسندگان
چکیده
Article history: Received 31 December 2013 Received in revised form 17 April 2015 Accepted 20 April 2015 Available online 25 April 2015 This paper investigates how cross-country variations in institutional variables affect the relationship between rating changes and firms' capital structure adjustment. Our results demonstrate first that the asymmetric effect exists, that is, firms adjust their capital structure when ratings are downgraded, but do not significantly adjust their leverage ratios when ratings are upgraded. Second, capital structure adjusts faster in countries with better financial development and strong legal and institutional environments than in weak ones, regardless of the upgraded and downgraded rating changes. Hence, the financial development and legal and institutional environments are more crucial in affecting the leverage ratio adjustments than the rating change directions. © 2015 Elsevier Inc. All rights reserved. JEL classification: G15 G32
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