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Bond Market Access, Credit Quality, and Capital Structure: Canadian Evidence
Author(s) -
Mittoo Usha R.,
Zhang Zhou
Publication year - 2010
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/j.1540-6288.2010.00262.x
Subject(s) - leverage (statistics) , credit rating , bond market , bond , bond credit rating , business , capital structure , monetary economics , quality (philosophy) , financial system , economics , finance , credit risk , credit reference , debt , philosophy , epistemology , machine learning , computer science
We examine the impact of bond market access (measured by having a credit rating) on leverage for Canadian high credit quality (HQ) and low credit quality (LQ) firms, and find that the leverage impact is more pronounced for LQ firms. The results are similar for U.S. firms. Our results are confirmed when we control for the firm's credit quality, examine the change in leverage around rating initiation, and account for the issue size effect. A similar leverage impact for Canadian and U.S. LQ firms suggests that the Canada‐U.S. bond market integration has mitigated the financial constraints for Canadian LQ firms.