Does the source of capital affect capital structure?

Michael Faulkender, Mitchell A. Petersen*

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

565 Scopus citations


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

Original languageEnglish (US)
Pages (from-to)45-79
Number of pages35
JournalReview of Financial Studies
Issue number1
StatePublished - Jun 1 2006

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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