Investment decisions are strategic decisions that require a thorough analysis of risk, because the risk management is a basis of decision making. The goal of investing is not just profit in a certain period of time, but depending on the preferences of the decision maker, there should be a compromise between maximizing the expected return on investment and efforts to reduce the risk to a minimum...

Moody’s adjusts a firm’s reported leverage across several dimensions to determine credit ratings. I find that changes to these adjustments affect firm capital structure and investment decisions, especially for firms near the investment grade boundary and with bond covenants containing ratings triggers. Further, in 2006, Moody’s made several changes to its adjustment methodologies. I find that c...