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Sergey Chernenko, Adi Sunderam, The Real Consequences of Market Segmentation, The Review of Financial Studies, Volume 25, Issue 7, July 2012, Pages 2041–2069, https://doi.org/10.1093/rfs/hhr143
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Abstract
We study the real effects of market segmentation due to credit ratings by using a matched sample of firms just above and just below the investment-grade cutoff. These firms have similar observables, including average investment rates. However, flows into high-yield mutual funds have an economically significant effect on the issuance and investment of the speculative-grade firms relative to their matches, especially for firms likely to be financially constrained. The effect is associated with the discrete change in label from investment- to speculative-grade, not with changes in continuous measures of credit quality. We do not find similar effects at other rating boundaries.