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RFS Advance Access published online on October 28, 2005
Review of Financial Studies, doi:10.1093/rfs/hhj003
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© The Author 2005. Published by Oxford University Press on behalf of the by The Society for Financial Studies. All rights reserved. For permissions, please email: journals.permissions@oxfordjournals.org.

Article

Does the Source of Capital Affect Capital Structure?

Michael Faulkender 1 and Mitchell A. Petersen 2
1 Olin School of Business, Washington University in St. Louis
2 Kellogg School of Management, Northwestern University and NBER


  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 which 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 which determine observed capital structure, and instrumenting for the possible endogeneity of having a rating, firms with access have 35 percent more debt.


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