Does the Source of Capital Affect Capital Structure?, Review of Financial Studies
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. Michael Brennan Award for Best Paper Runner-up
Michael Faulkender, Mitchell A. Petersen
Faulkender, Michael, and Mitchell A. Petersen. 2006. Does the Source of Capital Affect Capital Structure?. Review of Financial Studies. 19(1): 45-79.