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Does the source of capital affect capital structure?

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  • Michael Faulkender
  • Mitchell A. Petersen

Abstract

Prior work on leverage implicitly assumes capital availability depends solely on firm characteristics. However, market frictions that make capital structure relevant may also be associated with a firm's source of capital. Examining this intuition, we find firms that 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 that determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35% more debt. Copyright 2006, Oxford University Press.
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Suggested Citation

  • Michael Faulkender & Mitchell A. Petersen, 2003. "Does the source of capital affect capital structure?," Proceedings 858, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhpr:858
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    More about this item

    Keywords

    Bank capital; Bank loans;

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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