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The Real Effects of Debt Certification: Evidence from the Introduction of Bank Loan Ratings
Abstract
I examine the introduction of syndicated bank loan ratings by Moody's and Standard & Poor's in 1995 to evaluate whether third-party rating agencies affect firm financial and investment policy. The introduction of bank loan ratings leads to an increase in the use of debt by firms that obtain a rating, and also increases in firms' asset growth, cash acquisitions, and investment in working capital. Consistent with a causal effect of the ratings, the increase in debt usage and investment is concentrated in the set of borrowers who are of lower credit quality and do not have an issuer credit rating before 1995. A loan-level analysis demonstrates that previously unrated borrowers who obtain a loan rating gain increased access to the capital of less-informed investors. The results suggest that third-party debt certification has real effects on firm investment policy.
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Cites
Corporate financing and investment decisions when firms have information that investors do not have
Myers, S. C., & Majluf, N. S. (1984) · Journal of Financial Economics · doi:10.1016/0304-405x(84)90023-0 · Cited by 18,957
Financial intermediation and delegated monitoring
Diamond, D. W. (1984) · The Review of Economic Studies · doi:10.2307/2297430 · Cited by 8,476
What Do We Know about Capital Structure? Some Evidence from International Data
RAJAN, R. G., & ZINGALES, L. (1995) · The Journal of Finance · doi:10.1111/j.1540-6261.1995.tb05184.x · Cited by 6,538
Financing Constraints and Corporate Investment
Fazzari, S. M., Hubbard, R. G., Petersen, B. C., Blinder, A. S., & Poterba, J. M. (1988) · Brookings Papers on Economic Activity · doi:10.2307/2534426 · Cited by 5,574
Cited by
Bank lending during the financial crisis of 2008
Ivashina, V., & Scharfstein, D. (2010) · Journal of Financial Economics · doi:10.1016/j.jfineco.2009.12.001 · Cited by 2,766
Endogeneity in Empirical Corporate Finance1
Roberts, M. R., & Whited, T. M. (2013) · Handbook of the Economics of Finance · doi:10.1016/b978-0-44-453594-8.00007-0 · Cited by 2,459
Does Credit Competition Affect Small‐Firm Finance?
RICE, T., & STRAHAN, P. E. (2010) · The Journal of Finance · doi:10.1111/j.1540-6261.2010.01555.x · Cited by 684
A Review of Empirical Capital Structure Research and Directions for the Future
Graham, J. R., & Leary, M. T. (2011) · Annual Review of Financial Economics · doi:10.1146/annurev-financial-102710-144821 · Cited by 547
Monetary stimulus and bank lending
Chakraborty, I., Goldstein, I., & MacKinlay, A. (2020) · Journal of Financial Economics · doi:10.1016/j.jfineco.2019.09.007 · Cited by 259
Metadata
- Authors
- Sufi, A.
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2007-12-11
- Volume
- 22
- Issue
- 4
- Pages
- 1659-1691
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W3122328478
- Cited by
- 345
- References
- 4
- FWCI
- 23.62
- Type
- journal article
- Language
- en
- Open access
- closed
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