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Faulkender, Michael
Petersen, Mitchell A.
Year of Publication: 
Series/Report no.: 
CSIO working paper 0054
Prior work on leverage implicitly assumes capital availability depends solely on firm characteristics. However, market frictions that make capital structure relevant may be associated with a firm's source of capital. Examining this intuition, we find firms which have access to the public bond markets, as measured by having a debt rating, have significantly more leverage. Although firms with a rating are fundamentally different, these differences do not explain our findings. Even after controlling for firm characteristics which determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35 percent more debt.
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Working Paper

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