The role of credit ratings on capital structure and its speed of adjustment : an international study

Michal WOJEWODZKI, Winnie P. H. POON, Jianfu SHEN

Research output: Journal PublicationsJournal Article (refereed)peer-review

26 Citations (Scopus)
107 Downloads (Pure)


Using an international dataset, we examine the role of issuers’ credit ratings in explaining corporate leverage and the speed with which firms adjust toward their optimal level of leverage. We find that, in countries with a more market-oriented financial system, the impact of credit ratings on firms’ capital structure is more significant and that firms with a poorer credit rating adjust more rapidly. Furthermore, our results show some striking differences in the speed of adjusting capital structure between firms rated as speculative and investment grade, with the former adjusting much more rapidly. As hypothesized, those differences are statistically significant only for firms based in a more market-oriented economy.
Original languageEnglish
Pages (from-to)735-760
Number of pages26
JournalEuropean Journal of Finance
Issue number9
Early online date20 Jul 2017
Publication statusPublished - Jun 2018

Bibliographical note

Poon acknowledges a research grant (LU13501214) from the General Research Fund (GRF), Research Grants Council, Hong Kong. Shen and Poon acknowledge a research grant (UGC/FDS14/B20/16) from the Faculty Development Scheme (FDS) and Research Grants Council, Hong Kong.


  • capital structure
  • credit ratings
  • speed of adjustment
  • Capital structure

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