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Flexible prices and leverage

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  • D’Acunto, Francesco
  • Liu, Ryan
  • Pflueger, Carolin
  • Weber, Michael

Abstract

The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most flexible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital structure. Sticky-price firms increased leverage more than flexible-price firms following the staggered implementation of bank deregulation across states and over time, which we use in a difference-in-differences strategy. Firms’ frequency of price adjustment did not change around the deregulation.

Suggested Citation

  • D’Acunto, Francesco & Liu, Ryan & Pflueger, Carolin & Weber, Michael, 2018. "Flexible prices and leverage," Journal of Financial Economics, Elsevier, vol. 129(1), pages 46-68.
  • Handle: RePEc:eee:jfinec:v:129:y:2018:i:1:p:46-68
    DOI: 10.1016/j.jfineco.2018.03.009
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    More about this item

    Keywords

    Capital structure; Nominal rigidities; Bank deregulation; Industrial organization and finance; Price setting; Bankruptcy;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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