Advanced Search
MyIDEAS: Login to save this article or follow this journal

Credit market conditions and the impact of access to the public debt market on corporate leverage

Contents:

Author Info

  • Judge, Amrit
  • Korzhenitskaya, Anna
Registered author(s):

    Abstract

    This study examines the role played by credit ratings in explaining corporate capital structure choice during a period characterised by a major adverse loan supply shock. Recent literature has argued that supply-side factors are potentially as important as demand-side forces in determining corporate leverage. This is based on the premise that debt markets are segmented and that those firms that have access to the private debt markets do not necessarily have access to the public debt markets. The question of access to debt finance has become a major issue for public policy makers in several developed economies during the 2007–2009 financial crisis. The UK economy has been subjected to a period of severe tightening of credit market conditions resulting in a significant reduction in the availability of bank credit to the corporate sector. An important question is whether the contraction in the flow of bank credit to firms has affected firms equally or whether firms with access to alternative sources of debt finance have been able to mitigate the effect of adverse changes to the cost and availability of bank credit. To investigate this issue, this study employs data over a 20year period that includes two recessions and three noticeable periods of credit market tightening. Despite the fact that a severe recession has accompanied the 2007–2009 financial crisis we argue that the underlying forces driving the weakness in bank lending to the corporate sector are mainly supply side rather than demand side factors. In this study we use the possession of a credit rating as an indicator of access to the public debt markets. Our results provide support for the notion that having a rating is associated with higher leverage ratios, even after controlling for demand-side leverage determinants and macroeconomic conditions. More importantly, the study finds that the impact on leverage of having a credit rating varies over our sample period with the effect being greatest in those years when credit market conditions were tightest. The results are robust to the use of an alternative measure for public debt market access, different proxies for measuring the tightness of the credit markets, alternative econometric specifications and various sub-periods within our overall sample period.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.sciencedirect.com/science/article/pii/S1057521912000865
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Elsevier in its journal International Review of Financial Analysis.

    Volume (Year): 25 (2012)
    Issue (Month): C ()
    Pages: 28-63

    as in new window
    Handle: RePEc:eee:finana:v:25:y:2012:i:c:p:28-63

    Contact details of provider:
    Web page: http://www.elsevier.com/locate/inca/620166

    Related research

    Keywords: Capital structure; Credit ratings; Bond market access; Financial crisis;

    Find related papers by JEL classification:

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eee:finana:v:25:y:2012:i:c:p:28-63. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.