3. Do Changes in Credit Rating Truly Impact Leverage Decisions?
3.10. Appendix
Table 1 – Corporate Credit Ratings Throughout Time
The following table presents the distribution of firms rated by credit rating category from 1985 to 2015. Each credit rating category includes the ratings with the “+” and “-” signs if those exist. For example, the AA category includes AA+, AA and AA- firms.
AAA AA A BBB BB B CCC CC C Total
1985 10 52 99 70 55 43 0 2 0 331
1986 13 59 138 114 94 113 5 5 6 547
1987 14 64 145 111 124 156 8 5 8 635
1988 17 61 153 114 125 157 9 5 5 646
1989 18 59 149 117 115 135 9 6 3 611
1990 17 62 149 123 110 93 11 4 4 573
1991 16 62 156 135 111 85 7 3 6 581
1992 15 61 159 165 120 92 7 1 7 627
1993 13 60 171 167 157 109 4 0 1 682
1994 12 58 161 186 178 127 4 1 2 729
1995 13 54 188 202 197 149 7 3 0 813
1996 12 60 191 232 233 175 6 3 1 913
1997 9 62 203 265 261 221 4 3 0 1,028
1998 10 62 211 299 286 221 11 5 0 1,105
1999 10 52 194 326 294 234 12 4 1 1,127
2000 7 41 192 322 300 244 13 8 3 1,13
2001 7 40 181 341 296 229 18 8 6 1,126
2002 6 36 178 339 319 204 21 17 6 1,126
2003 7 34 175 334 341 218 13 14 6 1,142
2004 7 31 178 332 361 209 15 10 0 1,143
2005 7 28 171 316 353 216 17 4 1 1,113
2006 7 29 146 297 331 257 12 7 1 1,087
2007 6 23 143 274 319 253 11 3 0 1,032
2008 6 25 133 274 291 228 23 12 3 995
2009 4 26 127 275 270 240 19 9 3 973
2010 5 23 127 293 275 250 12 3 1 989
2011 4 21 131 291 284 246 5 4 1 987
2012 4 22 128 309 288 248 10 6 0 1,015
2013 5 26 130 322 307 240 16 3 0 1,049
2014 4 29 124 310 296 224 15 1 2 1,005
2015 4 27 112 291 266 172 24 8 7 911
Total 289 1,349 4,843 7,546 7,357 5,788 348 167 84 27,771
162 Table 2 – Summary Statistics
This table presents the annual averages and standard deviations for the entire sample. Rat is a numerical scale for S&P credit ratings, which is decreasing in credit quality (AAA=1, AA+=2, AA=3,…). Mkt_lev represents interest paying debt divided by the sum of interest paying debt with the market value of equity. Net_debt is the firm net debt issuance proportional to its assets. Profit is EBITDA divided by sales. Mkt_bk is total book assets plus market equity minus book equity minus balance sheet deferred taxes, all divided by book assets. Assets is the natural logarithm of total assets measured in constant prices of 2005. PPE is net property, plant, and equipment divided by total assets. R_D is the Research & Development expenditures divided by total assets. Cash is cash plus marketable securities divided by total assets. Tax_sh is investment tax credits divided by total assets. Carry_f is tax losses divided by book assets. All the variables were winsorized at the 1st and 99th percentiles.
Rat Mkt_lev Net_debt Profit Mkt_bk Assets PPE R_D Cash Tax_sh Carry_f 1985 8.229 0.342 0.045 0.148 1.338 7.725 0.444 0.020 0.077 0.004 0.023
(3.993) (0.205) (0.108) (0.106) (0.485) (1.418) (0.213) (0.029) (0.084) (0.003) (0.087) 1986 9.329 0.360 0.064 0.137 1.397 7.345 0.409 0.018 0.088 0.003 0.030
(4.222) (0.213) (0.141) (0.120) (0.536) (1.493) (0.210) (0.030) (0.103) (0.002) (0.113) 1987 9.822 0.394 0.037 0.145 1.361 7.275 0.391 0.017 0.098 0.001 0.037
(4.285) (0.230) (0.135) (0.127) (0.527) (1.511) (0.213) (0.030) (0.113) (0.002) (0.124) 1988 9.753 0.118 0.103 0.399 0.022 0.148 1.353 7.374 0.390 0.001 0.037
(4.297) (0.323) (0.304) (0.230) (0.108) (0.126) (0.509) (1.555) (0.212) (0.002) (0.133) 1989 9.560 0.383 0.025 0.147 1.443 7.514 0.396 0.018 0.078 0.001 0.034
(4.253) (0.233) (0.104) (0.125) (0.574) (1.523) (0.218) (0.033) (0.095) (0.001) (0.121) 1990 9.223 0.412 0.015 0.148 1.375 7.705 0.408 0.018 0.072 0.001 0.036
(4.219) (0.247) (0.085) (0.126) (0.613) (1.478) (0.221) (0.032) (0.097) (0.001) (0.124) 1991 9.175 0.383 0.005 0.145 1.514 7.742 0.418 0.018 0.072 0.000 0.041
(4.211) (0.239) (0.080) (0.127) (0.807) (1.441) (0.223) (0.033) (0.092) (0.001) (0.140) 1992 9.258 0.358 0.000 0.145 1.582 7.697 0.416 0.018 0.072 0.000 0.044
(4.077) (0.232) (0.085) (0.127) (0.749) (1.456) (0.221) (0.034) (0.089) (0.001) (0.147) 1993 9.304 0.325 0.012 0.150 1.651 7.707 0.411 0.017 0.073 0.000 0.028
(3.809) (0.204) (0.088) (0.128) (0.713) (1.425) (0.228) (0.034) (0.089) (0.001) (0.116) 1994 9.599 0.348 0.020 0.159 1.540 7.662 0.409 0.016 0.069 0.000 0.026
(3.808) (0.216) (0.097) (0.128) (0.604) (1.410) (0.226) (0.032) (0.087) (0.001) (0.108) 1995 9.690 0.342 0.027 0.168 1.640 7.671 0.402 0.016 0.070 0.000 0.027
(3.784) (0.223) (0.100) (0.146) (0.758) (1.427) (0.225) (0.032) (0.092) (0.001) (0.105) 1996 9.892 0.330 0.036 0.165 1.734 7.655 0.403 0.015 0.070 0.000 0.026
(3.716) (0.226) (0.116) (0.157) (0.853) (1.401) (0.230) (0.031) (0.094) (0.001) (0.097) 1997 10.104 0.325 0.055 0.173 1.830 7.651 0.392 0.015 0.076 0.000 0.031
(3.664) (0.223) (0.125) (0.163) (0.940) (1.410) (0.237) (0.033) (0.102) (0.001) (0.106) 1998 10.174 0.370 0.061 0.158 1.794 7.730 0.386 0.015 0.069 0.000 0.032
(3.677) (0.243) (0.131) (0.159) (1.046) (1.390) (0.235) (0.031) (0.095) (0.001) (0.099)
163
Rat Mkt_lev Net_debt Profit Mkt_bk Assets PPE R_D Cash Tax_sh Carry_f 1999 10.321 0.377 0.037 0.168 1.858 7.825 0.371 0.014 0.071 0.000 0.032
(3.584) (0.248) (0.111) (0.157) (1.195) (1.412) (0.237) (0.030) (0.100) (0.001) (0.097) 2000 10.503 0.399 0.019 0.172 1.734 7.915 0.362 0.014 0.071 0.000 0.034
(3.534) (0.270) (0.098) (0.167) (1.117) (1.410) (0.235) (0.029) (0.104) (0.001) (0.104) 2001 10.554 0.381 0.024 0.165 1.665 7.978 0.361 0.015 0.076 0.000 0.040
(3.556) (0.253) (0.098) (0.154) (0.967) (1.400) (0.238) (0.032) (0.103) (0.001) (0.116) 2002 10.656 0.394 0.003 0.168 1.508 8.011 0.356 0.016 0.086 0.000 0.052
(3.563) (0.254) (0.088) (0.151) (0.780) (1.409) (0.241) (0.033) (0.104) (0.001) (0.139) 2003 10.652 0.326 0.003 0.175 1.662 8.062 0.348 0.016 0.094 0.000 0.054
(3.441) (0.223) (0.083) (0.153) (0.800) (1.404) (0.239) (0.032) (0.105) (0.001) (0.136) 2004 10.615 0.283 0.004 0.187 1.753 8.136 0.337 0.015 0.100 0.000 0.060
(3.350) (0.201) (0.083) (0.149) (0.832) (1.392) (0.235) (0.031) (0.102) (0.001) (0.138) 2005 10.697 0.273 0.009 0.191 1.768 8.149 0.325 0.015 0.101 0.000 0.068
(3.319) (0.201) (0.092) (0.150) (0.793) (1.373) (0.233) (0.031) (0.107) (0.001) (0.157) 2006 10.927 0.270 0.020 0.195 1.778 8.161 0.328 0.015 0.093 0.000 0.077
(3.377) (0.200) (0.100) (0.150) (0.755) (1.395) (0.237) (0.031) (0.099) (0.001) (0.174) 2007 10.971 0.298 0.031 0.193 1.756 8.262 0.329 0.015 0.088 0.000 0.070
(3.354) (0.219) (0.111) (0.155) (0.843) (1.389) (0.242) (0.030) (0.093) (0.001) (0.157) 2008 11.142 0.423 0.024 0.176 1.354 8.275 0.341 0.016 0.088 0.000 0.078
(3.577) (0.263) (0.091) (0.160) (0.606) (1.411) (0.244) (0.032) (0.092) (0.001) (0.173) 2009 11.118 0.347 -0.005 0.172 1.512 8.281 0.343 0.014 0.110 0.000 0.085
(3.491) (0.229) (0.072) (0.157) (0.652) (1.424) (0.247) (0.029) (0.100) (0.001) (0.179) 2010 11.010 0.304 0.005 0.207 1.641 8.338 0.337 0.014 0.112 0.000 0.089
(3.392) (0.211) (0.081) (0.153) (0.724) (1.418) (0.250) (0.028) (0.099) (0.001) (0.182) 2011 10.884 0.336 0.022 0.212 1.531 8.429 0.330 0.014 0.106 0.001 0.104
(3.288) (0.222) (0.086) (0.155) (0.701) (1.402) (0.252) (0.029) (0.098) (0.001) (0.197) 2012 10.908 0.333 0.032 0.205 1.566 8.490 0.339 0.014 0.100 0.000 0.102
(3.267) (0.213) (0.091) (0.161) (0.710) (1.394) (0.260) (0.028) (0.094) (0.001) (0.191) 2013 10.889 0.294 0.025 0.206 1.756 8.521 0.343 0.014 0.104 0.001 0.103
(3.287) (0.191) (0.086) (0.160) (0.830) (1.408) (0.265) (0.028) (0.096) (0.002) (0.190) 2014 10.785 0.315 0.027 0.204 1.760 8.577 0.342 0.014 0.098 0.001 0.103
(3.287) (0.208) (0.080) (0.161) (0.880) (1.393) (0.266) (0.029) (0.097) (0.002) (0.185) 2015 10.848 0.358 0.022 0.165 1.716 8.621 0.339 0.014 0.094 0.001 0.112
(3.441) (0.236) (0.082) (0.184) (0.888) (1.403) (0.266) (0.029) (0.094) (0.002) (0.201) Total 10.372 0.141 0.114 0.344 0.023 0.175 1.637 8.008 0.364 0.000 0.058
(3.675) (0.348) (0.318) (0.231) (0.100) (0.152) (0.828) (1.461) (0.240) (0.001) (0.149)
164
Table 3 – Partial Adjustment in Market Leverage Following a Change in Credit Ratings
This table presents coefficients for several regression models of changes in market leverage on lagged levels of market leverage and several controls for the target leverage.
All specifications also include a dummy variable to control if the company was upgraded or downgraded in the previous period. The variable Upgrade takes the value of 1 if the firm was upgraded in the previous period and zero otherwise. The variable Downgrade takes the value of 1 if the firm was downgraded in the previous period and zero otherwise.
Columns (2) and (3) estimate the impact on changes in market leverage while employing firm fixed effects, while columns (5) and (6) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, **
and *** represent significance levels of 10%, 5% and 1%, respectively.
(1) (2) (3) (4) (5) (6)
Downgradet-1 -0.023*** -0.011*** -0.028*** -0.039*** -0.013*** -0.022***
(0.003) (0.004) (0.004) (0.004) (0.004) (0.004)
Upgradet-1 0.008*** -0.002 0.015*** 0.023*** -0.001 0.004
(0.003) (0.003) (0.004) (0.004) (0.003) (0.003)
Mkt_levt-1 -0.131*** -0.255*** -0.153***
(0.006) (0.011) (0.007)
Profit t-1 0.014* -0.003 0.029 0.003 0.010
(0.008) (0.018) (0.020) (0.011) (0.011)
Mkt_bk t-1 -0.001 -0.001 0.022*** -0.001 0.014***
(0.001) (0.002) (0.002) (0.001) (0.001)
PPE t-1 0.008** -0.017 -0.071*** -0.008 -0.026***
(0.004) (0.018) (0.019) (0.007) (0.007)
Assets t-1 -0.000 0.011*** 0.009*** -0.002* -0.004***
(0.001) (0.002) (0.002) (0.001) (0.001)
R_D t-1 -0.225*** -0.060 -0.038 -0.189*** -0.163***
(0.031) (0.115) (0.130) (0.051) (0.050)
Taxsd t-1 1.708** -0.230 0.956 1.329* 1.675**
(0.705) (0.853) (0.900) (0.727) (0.736)
Carryf t-1 0.009 0.021 0.006 0.009 -0.003
(0.008) (0.013) (0.014) (0.009) (0.009)
Rat t-1 0.003*** -0.004*** -0.013*** 0.003*** -0.002***
(0.000) (0.001) (0.001) (0.000) (0.000)
Constant 0.007*** 0.015* 0.054* 0.053* 0.044*** 0.039***
(0.001) (0.009) (0.029) (0.030) (0.012) (0.012)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
𝛾1> −𝛾2 0.0003 0.0100 0.0228 0.0088 0.0058 0.0008
N 22,707 14,603 14,603 14,603 14,603 14,603
R2 0.005 0.041 0.234 0.194 0.061 0.029
165
Table 4 – Partial Adjustment in Leverage by Investment and Speculative Firms This table presents coefficients for several regression models of changes in market leverage on lagged levels of market leverage and several controls for the target leverage.
Panel A conditions the sample by investment grade firms while panel B conditions the sample by speculative grade firms. All specifications also include a dummy variable to control if the company was upgraded or downgraded in the previous period. The variable Upgrade takes the value of 1 if the firm was upgraded in the previous period and zero otherwise. The variable Downgrade takes the value of 1 if the firm was downgraded in the previous period and zero otherwise. Columns (2) and (3) estimate the impact on changes in market leverage while employing firm fixed effects, while columns (5) and (6) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
Panel A – Investment Grade Firms
(1) (2) (3) (4) (5) (6)
Downgradet-1 -0.005 0.002 -0.007 -0.014*** 0.002 -0.003
(0.003) (0.004) (0.005) (0.005) (0.004) (0.004)
Upgradet-1 0.013*** 0.004 0.006* 0.013*** 0.003 0.006*
(0.003) (0.003) (0.004) (0.004) (0.003) (0.003)
Mkt_levt-1 -0.093*** -0.233*** -0.118***
(0.008) (0.016) (0.010)
Profit t-1 -0.003 -0.018 0.008 0.002 0.016
(0.007) (0.019) (0.018) (0.011) (0.011)
Mkt_bk t-1 -0.002 -0.002 0.013*** -0.001 0.007***
(0.001) (0.002) (0.002) (0.001) (0.001)
PPE t-1 0.005 -0.003 -0.027 -0.003 -0.014*
(0.004) (0.017) (0.018) (0.008) (0.007)
Assets t-1 0.001 0.011*** 0.009*** 0.002* -0.001
(0.001) (0.002) (0.002) (0.001) (0.001)
R_D t-1 -0.114*** 0.085 0.107 -0.138** -0.118**
(0.030) (0.120) (0.134) (0.058) (0.057)
Taxsd t-1 2.545*** 0.070 0.578 2.378*** 2.439***
(0.824) (0.803) (0.853) (0.826) (0.830)
Carryf t-1 -0.006 0.025 0.052* -0.004 0.009
(0.016) (0.033) (0.028) (0.019) (0.018)
Rat t-1 0.001*** -0.003*** -0.008*** 0.001** -0.001*
(0.000) (0.001) (0.001) (0.001) (0.001)
Constant 0.007*** 0.009 -0.004 -0.028 0.012 0.009
(0.001) (0.010) (0.027) (0.028) (0.013) (0.012)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
N 12,184 7,759 7,759 7,759 7,759 7,759
R2 0.003 0.022 0.230 0.193 0.053 0.034
166
Panel B – Speculative Grade Firms
(1) (2) (3) (4) (5) (6)
Downgradet-1 -0.035*** -0.021*** -0.051*** -0.065*** -0.024*** -0.037***
(0.004) (0.006) (0.008) (0.008) (0.006) (0.006)
Upgradet-1 0.004 -0.007 0.022*** 0.029*** -0.003 0.004
(0.004) (0.005) (0.007) (0.007) (0.006) (0.006)
Mkt_levt-1 -0.151*** -0.263*** -0.178***
(0.009) (0.017) (0.011)
Profit t-1 0.019 -0.008 0.023 0.003 0.006
(0.012) (0.026) (0.028) (0.016) (0.016)
Mkt_bk t-1 0.002 -0.001 0.038*** 0.000 0.025***
(0.003) (0.006) (0.006) (0.003) (0.003)
PPE t-1 0.009 -0.017 -0.076** -0.023* -0.038***
(0.007) (0.035) (0.038) (0.012) (0.012)
Assets t-1 -0.002 0.008 0.006 -0.005*** -0.006***
(0.001) (0.005) (0.006) (0.002) (0.002)
R_D t-1 -0.392*** -0.227 -0.055 -0.294*** -0.204**
(0.063) (0.260) (0.278) (0.090) (0.088)
Taxsd t-1 -0.349 -2.337 -0.468 -0.803 0.191
(1.279) (2.458) (2.672) (1.378) (1.445)
Carryf t-1 0.013 0.019 -0.001 0.012 0.000
(0.009) (0.015) (0.017) (0.010) (0.011)
Rat t-1 0.004*** -0.008*** -0.021*** 0.003** -0.006***
(0.001) (0.002) (0.002) (0.001) (0.001)
Constant 0.008*** 0.028 0.188*** 0.220*** 0.096*** 0.109***
(0.001) (0.020) (0.062) (0.066) (0.025) (0.025)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
N 10,523 6,844 6,844 6,844 6,844 6,844
R2 0.008 0.056 0.283 0.251 0.090 0.057
167
Table 5 – Partial Adjustment in Net Debt Issuances
This table presents coefficients for several regression models of changes in net debt on lagged levels of net debt and several controls for the target leverage. All specifications also include a dummy variable to control if the company was upgraded or downgraded in the previous period. The variable Upgrade takes the value of 1 if the firm was upgraded in the previous period and zero otherwise. The variable Downgrade takes the value of 1 if the firm was downgraded in the previous period and zero otherwise. Columns (3) and (3) estimate the impact on changes in net debt while employing firm fixed effects, while columns (5) and (6) employ industry fixed effects based on the three-digit SIC codes.
Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
(1) (2) (3) (4) (5) (6)
Downgradet-1 -0.025*** -0.025*** -0.027*** -0.028*** -0.025*** -0.027***
(0.003) (0.004) (0.004) (0.004) (0.004) (0.004) Upgradet-1 0.023*** 0.021*** 0.023*** 0.023*** 0.022*** 0.022***
(0.003) (0.004) (0.004) (0.004) (0.004) (0.004)
Net_debtt-1 -0.018 0.034** -0.014
(0.013) (0.017) (0.013)
Profitt -0.016** -0.059*** -0.056*** -0.013 -0.012
(0.007) (0.021) (0.020) (0.010) (0.009) Mkt_bkt-1 -0.007*** -0.011*** -0.010*** -0.008*** -0.008***
(0.001) (0.002) (0.002) (0.001) (0.001)
PPEt-1 -0.007** -0.024 -0.022 -0.015*** -0.015***
(0.003) (0.019) (0.019) (0.006) (0.006)
Assetst-1 0.002*** 0.008*** 0.009*** 0.003*** 0.003***
(0.001) (0.002) (0.002) (0.001) (0.001)
R_Dt-1 -0.023 -0.112 -0.099 -0.041 -0.042
(0.027) (0.142) (0.142) (0.043) (0.043)
Taxsdt-1 -0.723 -1.800 -2.005* -0.558 -0.860
(0.765) (1.129) (1.103) (0.787) (0.781)
Carryft-1 0.010 0.030** 0.020 0.011 0.010
(0.007) (0.014) (0.014) (0.008) (0.008)
Ratt-1 -0.001*** -0.001 -0.001 -0.001*** -0.001***
(0.000) (0.001) (0.001) (0.000) (0.000)
Constant -0.003*** 0.007 -0.017 -0.027 0.007 0.007
(0.001) (0.007) (0.027) (0.026) (0.008) (0.008)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
𝛾1> −𝛾2 0.5699 0.5372 0.5249 0.4359 0.5252 0.4267
N 20,545 12,719 12,719 13,129 12,719 13,129
R2 0.011 0.013 0.113 0.113 0.021 0.021
168 Table 6 – Partial Adjustment in Cash Holdings
This table presents coefficients for several regression models of changes in cash holdings on lagged level of cash holdings, or the previous change in cash holdings, and the levels of several controls. All specifications also include a dummy variable to control if the company was upgraded or downgraded in the previous period. The variable Upgrade takes the value of 1 if the firm was upgraded in the previous period and zero otherwise.
The variable Downgrade takes the value of 1 if the firm was downgraded in the previous period and zero otherwise. Columns (1) and (2) estimate the impact on changes in cash holdings while employing firm fixed effects, while columns (3) and (4) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
(1) (2) (3) (4) (5) (6)
Downgradet-1 0.010*** 0.008*** 0.006*** 0.008*** 0.007*** 0.009***
(0.001) (0.001) (0.001) (0.001) (0.001) (0.001) Upgradet-1 -0.004*** -0.003** -0.004*** -0.005*** -0.003*** -0.004***
(0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
Casht-1 -0.123*** -0.222*** -0.141***
(0.006) (0.010) (0.006)
Mkt_lev t-1 0.007*** 0.016*** 0.027*** 0.009*** 0.016***
(0.002) (0.003) (0.003) (0.002) (0.002)
Profit t-1 -0.002 -0.007 -0.001 -0.002 0.009**
(0.003) (0.006) (0.007) (0.004) (0.004)
Mkt_bk t-1 0.002*** 0.001 -0.000 0.002*** -0.000
(0.001) (0.001) (0.001) (0.001) (0.001)
Assets t-1 0.000 0.003*** 0.006*** 0.001*** 0.002***
(0.000) (0.001) (0.001) (0.000) (0.000)
PPE t-1 -0.005*** 0.004 0.060*** -0.003 0.016***
(0.001) (0.006) (0.007) (0.002) (0.002)
R_D t-1 0.154*** 0.008 0.039 0.122*** 0.039**
(0.015) (0.047) (0.053) (0.020) (0.018) Constant -0.000 0.002 -0.009 -0.076*** -0.001 -0.026***
(0.000) (0.002) (0.008) (0.009) (0.003) (0.003)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
𝛾1 > −𝛾2 0.0010 0.0048 0.3478 0.1337 0.0278 0.0106
N 22,707 22,707 22,707 22,707 22,707 22,707
R2 0.005 0.044 0.146 0.103 0.054 0.015
169 Table 7 – Predicted Credit Rating
This table presents coefficients for several regression models of credit ratings. Models (1) through (4) include industry fixed effects based on the three-digit SIC codes. Beta is the Dimson beta and Idiosyncratic is the root mean squared error from a daily regression of stock returns on CRSP weighted value index. Both measured are standardize by the sample annual average and winsorized to the 1st and 99th percentile. Standard errors are clustered at firm’s level for equations (1) to (6) and cluster by year for equations (7) and (8). *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
(1) (2) (3) (4)
Int_cov -0.005*** -0.005*** -0.014*** -0.015***
(0.001) (0.001) (0.002) (0.002)
Profit -0.927*** -1.192*** 0.217 -0.003
(0.335) (0.339) (0.397) (0.391) Book_lev 2.959*** 3.393*** 2.826*** 3.648***
(0.255) (0.245) (0.238) (0.224) Assets -0.464*** -0.478*** -1.032*** -1.182***
(0.062) (0.061) (0.039) (0.037) Debt/EBITDA 0.052*** 0.067*** 0.103*** 0.143***
(0.007) (0.007) (0.009) (0.009) Neg_debt/EBITDA 0.549*** 0.909*** 0.771*** 1.743***
(0.166) (0.175) (0.216) (0.208)
Volatility 0.602* 0.291 2.846*** 3.112***
(0.363) (0.322) (0.385) (0.349)
Cash 1.251*** 1.248*** 0.867** 1.064***
(0.414) (0.405) (0.406) (0.397)
Conv_Debt -0.457 -0.507 -0.146 -0.187
(0.476) (0.446) (0.459) (0.454)
Rent 6.042** 6.976** 0.595 4.606**
(3.060) (2.774) (1.934) (1.840)
PPE -2.495*** -2.715*** -1.864*** -1.922***
(0.507) (0.481) (0.342) (0.338) CAPEX -5.955*** -6.337*** -6.694*** -5.683***
(0.514) (0.651) (0.704) (0.761)
Beta 0.057* 0.335***
(0.030) (0.042)
MSE 0.806*** 1.576***
(0.057) (0.072)
Constant 13.174*** 14.198*** 16.340*** 18.971***
(0.602) (0.593) (0.417) (0.376)
Firm FE Yes Yes No No
Industry FE No No Yes Yes
N 20,003 24,025 20,003 24,025
R2 0.894 0.876 0.685 0.638
170
Table 8 – Partial Adjustment in Market Leverage by Predicted and Unpredicted Changes in Credit Ratings
This table presents coefficients for several regression models of changes in market leverage on lagged levels of market leverage and several controls for the target leverage.
The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels, the columns (2) and (3) estimate the impact on changes in market leverage while employing firm fixed effects, while columns (5) and (6) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
171
Panel A – Predicted Change in Credit Rating
(1) (2) (3) (4) (5) (6)
Down_Downt-1 -0.011*** -0.008 -0.019*** 0.004 0.003 -0.006
(0.004) (0.006) (0.006) (0.005) (0.005) (0.005)
Upgr_Upgrt-1 0.003 0.018*** 0.027*** -0.006 -0.005 0.002
(0.003) (0.005) (0.006) (0.004) (0.004) (0.005)
Mkt_levt-1 -0.268*** -0.135*** -0.158***
(0.011) (0.006) (0.007)
Profit t-1 0.003 0.039* 0.015* 0.006 0.014
(0.018) (0.020) (0.008) (0.011) (0.011)
Mkt_bk t-1 -0.001 0.024*** -0.001 -0.001 0.015***
(0.002) (0.002) (0.001) (0.001) (0.001)
PPE t-1 -0.018 -0.077*** 0.008** -0.008 -0.027***
(0.018) (0.019) (0.004) (0.007) (0.007)
Assets t-1 0.010*** 0.007*** -0.000 -0.001 -0.003***
(0.002) (0.002) (0.001) (0.001) (0.001)
R_D t-1 -0.075 -0.048 -0.229*** -0.195*** -0.170***
(0.113) (0.127) (0.031) (0.051) (0.049)
Taxsd t-1 0.058 1.419 1.774** 1.417* 1.839**
(0.855) (0.906) (0.704) (0.726) (0.736)
Carryf t-1 0.024* 0.009 0.009 0.010 -0.003
(0.013) (0.013) (0.008) (0.008) (0.008)
Rat t-1 -0.002** -0.012*** 0.004*** 0.003*** -0.001***
(0.001) (0.001) (0.000) (0.000) (0.000)
Constant 0.008*** 0.047 0.044 0.010 0.038*** 0.033***
(0.001) (0.028) (0.029) (0.009) (0.012) (0.012)
Firm FE No Yes Yes No No No
Industry FE No No No No Yes Yes
N 25,278 14,603 14,603 14,603 14,603 14,603
R2 0.000 0.229 0.184 0.041 0.060 0.026
172
Panel B – Unpredicted Changes in Credit Ratings
(1) (2) (3) (4) (5) (6)
Down_NoDownt-1 -0.032*** -0.039*** -0.049*** -0.017*** -0.020*** -0.029***
(0.004) (0.006) (0.006) (0.005) (0.005) (0.005)
Upgr_NoUpgrt-1 0.010*** 0.012** 0.020*** 0.004 0.005 0.009**
(0.003) (0.005) (0.005) (0.004) (0.004) (0.004)
Mkt_levt-1 -0.260*** -0.130*** -0.152***
(0.011) (0.006) (0.007)
Profit t-1 -0.001 0.033* 0.014* 0.003 0.011
(0.018) (0.020) (0.008) (0.011) (0.011)
Mkt_bk t-1 -0.001 0.023*** -0.001 -0.001 0.014***
(0.002) (0.002) (0.001) (0.001) (0.001)
PPE t-1 -0.011 -0.066*** 0.009** -0.008 -0.024***
(0.018) (0.019) (0.004) (0.007) (0.007)
Assets t-1 0.011*** 0.009*** -0.000 -0.002* -0.003***
(0.002) (0.002) (0.001) (0.001) (0.001)
R_D t-1 -0.084 -0.070 -0.224*** -0.190*** -0.168***
(0.113) (0.127) (0.031) (0.051) (0.050)
Taxsd t-1 -0.118 1.167 1.666** 1.297* 1.694**
(0.847) (0.892) (0.704) (0.725) (0.733)
Carryf t-1 0.021 0.005 0.009 0.009 -0.002
(0.013) (0.013) (0.008) (0.009) (0.009)
Rat t-1 -0.002** -0.011*** 0.003*** 0.003*** -0.001***
(0.001) (0.001) (0.000) (0.000) (0.000)
Constant 0.009*** 0.039 0.031 0.014 0.042*** 0.032***
(0.001) (0.029) (0.029) (0.009) (0.012) (0.012)
Firm FE No Yes Yes No No No
Industry FE No No No No Yes Yes
N 25,278 14,603 14,603 14,603 14,603 14,603
R2 0.005 0.234 0.192 0.042 0.062 0.030
Panel C – Unrealized but Predicted Changes in Credit Ratings
(1) (2) (3) (4) (5) (6)
NoDown_Downt-1 -0.006*** 0.001 -0.000 -0.005** -0.003 -0.005**
(0.001) (0.004) (0.004) (0.002) (0.002) (0.002)
NoUpgr_Upgrt-1 -0.011*** -0.001 0.003 -0.006** -0.004 -0.000
(0.002) (0.004) (0.004) (0.003) (0.003) (0.003)
Mkt_levt-1 -0.272*** -0.135*** -0.157***
(0.011) (0.006) (0.007)
Profit t-1 0.005 0.044** 0.015* 0.005 0.014
(0.018) (0.020) (0.008) (0.011) (0.011)
Mkt_bk t-1 -0.001 0.025*** -0.001 -0.001 0.015***
(0.002) (0.002) (0.001) (0.001) (0.001)
PPE t-1 -0.015 -0.074*** 0.008* -0.009 -0.028***
(0.018) (0.019) (0.004) (0.007) (0.007)
Assets t-1 0.010*** 0.007*** -0.000 -0.002* -0.003***
(0.002) (0.002) (0.001) (0.001) (0.001)
R_D t-1 -0.078 -0.065 -0.223*** -0.191*** -0.169***
(0.112) (0.125) (0.031) (0.051) (0.049)
Taxsd t-1 0.111 1.586* 1.764** 1.407* 1.893***
(0.851) (0.900) (0.704) (0.727) (0.734)
Carryf t-1 0.024* 0.009 0.009 0.010 -0.002
(0.013) (0.013) (0.008) (0.008) (0.008)
Rat t-1 -0.001 -0.010*** 0.004*** 0.003*** -0.002***
(0.001) (0.001) (0.000) (0.001) (0.000)
Constant 0.011*** 0.034 0.027 0.017* 0.043*** 0.036***
(0.001) (0.029) (0.029) (0.010) (0.012) (0.012)
Firm FE No Yes Yes No No No
Industry FE No No No No Yes Yes
N 25,278 14,603 14,603 14,603 14,603 14,603
R2 0.001 0.228 0.181 0.041 0.060 0.026
173
Table 9 – Partial Adjustment in Net Debt by Predicted and Unpredicted Changes in Credit Ratings
This table presents coefficients for several regression models of changes in net debt on lagged levels of net debt and several controls for the target leverage. The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels the columns (2) and (3) estimate the impact on changes in net debt while employing firm fixed effects, while columns (5) and (6) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and ***
represent significance levels of 10%, 5% and 1%, respectively.
174
Panel A – Predicted Change in Credit Rating
(1) (2) (3) (4) (5) (6)
Down_Downt-1 -0.024*** -0.027*** -0.029*** -0.027*** -0.028*** -0.030***
(0.005) (0.007) (0.007) (0.006) (0.006) (0.006)
Upgr_Upgrt-1 0.039*** 0.036*** 0.037*** 0.032*** 0.033*** 0.034***
(0.004) (0.006) (0.006) (0.005) (0.005) (0.005)
Net_debtt-1 0.032* -0.020 -0.016
(0.017) (0.013) (0.013)
Profitt-1 -0.053** -0.051** -0.014** -0.010 -0.008
(0.021) (0.021) (0.007) (0.010) (0.009)
Mkt_bkt-1 -0.010*** -0.009*** -0.006*** -0.007*** -0.007***
(0.002) (0.002) (0.001) (0.001) (0.001)
PPEt-1 -0.031 -0.029 -0.010*** -0.017*** -0.017***
(0.019) (0.018) (0.003) (0.006) (0.006)
Assetst-1 0.007*** 0.008*** 0.002*** 0.003*** 0.003***
(0.002) (0.002) (0.001) (0.001) (0.001)
R_Dt-1 -0.107 -0.089 -0.030 -0.047 -0.047
(0.141) (0.140) (0.027) (0.043) (0.043)
Taxsdt-1 -1.520 -1.710 -0.519 -0.360 -0.655
(1.135) (1.109) (0.767) (0.789) (0.783)
Carryft-1 0.032** 0.022 0.010 0.011 0.010
(0.014) (0.014) (0.007) (0.008) (0.008)
Ratt-1 -0.001 -0.001 -0.002*** -0.002*** -0.002***
(0.001) (0.001) (0.000) (0.000) (0.000)
Constant -0.009*** -0.013 -0.023 0.010 0.009 0.009
(0.000) (0.027) (0.026) (0.007) (0.009) (0.009)
Firm FE No Yes Yes No No No
Industry FE No No No No Yes Yes
N 22,817 12,719 13,129 12,719 12,719 13,129
R2 0.069 0.111 0.110 0.011 0.018 0.018
175
Panel B – Unpredicted Changes in Credit Ratings
(1) (2) (3) (4) (5) (6)
Down_NoDownt-1 -0.024*** -0.028*** -0.028*** -0.024*** -0.025*** -0.026***
(0.004) (0.006) (0.006) (0.004) (0.005) (0.004)
Upgr_NoUpgrt-1 0.019*** 0.010 0.009 0.011** 0.011** 0.011**
(0.004) (0.006) (0.006) (0.005) (0.005) (0.005)
Net_debtt-1 0.030* -0.024* -0.020
(0.017) (0.013) (0.013)
Profitt-1 -0.053** -0.051** -0.015** -0.010 -0.008
(0.021) (0.021) (0.007) (0.010) (0.009)
Mkt_bkt-1 -0.009*** -0.009*** -0.006*** -0.007*** -0.007***
(0.002) (0.002) (0.001) (0.001) (0.001)
PPEt-1 -0.021 -0.019 -0.006** -0.014** -0.014**
(0.019) (0.019) (0.003) (0.006) (0.006)
Assetst-1 0.007*** 0.009*** 0.003*** 0.004*** 0.004***
(0.002) (0.002) (0.001) (0.001) (0.001)
R_Dt-1 -0.131 -0.118 -0.025 -0.052 -0.053
(0.144) (0.143) (0.027) (0.043) (0.043)
Taxsdt-1 -1.531 -1.726 -0.537 -0.331 -0.627
(1.145) (1.120) (0.771) (0.793) (0.787)
Carryft-1 0.030** 0.020 0.009 0.011 0.011
(0.014) (0.014) (0.007) (0.008) (0.008)
Ratt-1 0.001 0.001 -0.000 -0.000 -0.000
(0.001) (0.001) (0.000) (0.000) (0.000)
Constant -0.007*** -0.037 -0.048* -0.009 -0.012 -0.013
(0.000) (0.027) (0.027) (0.007) (0.008) (0.008)
Firm FE No Yes Yes No No No
Industry FE No No No No Yes Yes
N 22,817 12,719 13,129 12,719 12,719 13,129
R2 0.067 0.109 0.108 0.008 0.016 0.015
Panel C – Unrealized but Predicted Changes in Credit Ratings
(1) (2) (3) (4) (5) (6)
NoDown_Downt-1 0.008*** -0.001 -0.001 -0.000 -0.001 -0.001
(0.003) (0.004) (0.004) (0.002) (0.002) (0.002)
NoUpgr_Upgrt-1 0.010*** 0.000 0.000 0.001 0.001 0.002
(0.003) (0.004) (0.004) (0.002) (0.002) (0.002)
Net_debtt-1 0.028* -0.027** -0.023*
(0.017) (0.013) (0.013)
Profitt-1 -0.047** -0.045** -0.012* -0.007 -0.005
(0.022) (0.021) (0.007) (0.010) (0.010)
Mkt_bkt-1 -0.008*** -0.008*** -0.005*** -0.006*** -0.006***
(0.002) (0.002) (0.001) (0.001) (0.001)
PPEt-1 -0.027 -0.024 -0.009*** -0.016*** -0.016***
(0.019) (0.019) (0.003) (0.006) (0.006)
Assetst-1 0.006*** 0.008*** 0.003*** 0.004*** 0.004***
(0.002) (0.002) (0.001) (0.001) (0.001)
R_Dt-1 -0.129 -0.112 -0.031 -0.057 -0.057
(0.143) (0.142) (0.027) (0.043) (0.043)
Taxsdt-1 -1.321 -1.513 -0.360 -0.146 -0.439
(1.151) (1.125) (0.772) (0.795) (0.789)
Carryft-1 0.032** 0.023* 0.009 0.011 0.011
(0.014) (0.014) (0.007) (0.008) (0.008)
Ratt-1 0.001 0.001* -0.001* -0.001 -0.001
(0.001) (0.001) (0.000) (0.000) (0.000)
Constant -0.012*** -0.038 -0.049* -0.009 -0.012 -0.013
(0.001) (0.028) (0.027) (0.007) (0.009) (0.009)
Firm FE No Yes Yes No No No
Industry FE No No No No Yes Yes
N 22,817 12,719 13,129 12,719 12,719 13,129
R2 0.065 0.105 0.104 0.004 0.012 0.011
176
Table 10 – Partial Adjustment in Cash Holdings by Predicted and Unpredicted Changes in Credit Ratings
This table presents coefficients for several regression models of changes in cash holdings on lagged levels of cash holdings and several controls for the target level. The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels the column (2) estimate the impact on changes in cash holdings while employing firm fixed effects, while column (3) employ industry fixed effects based on the three-digit SIC codes.
Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
177
Panel A – Predicted Change in Credit Rating
(1) (2) (3) (4) (5) (6)
Down_Downt-1 0.009*** 0.005*** 0.004* 0.007*** 0.005*** 0.008***
(0.002) (0.002) (0.002) (0.002) (0.002) (0.002)
Upgr_Upgrt-1 -0.002 -0.002 -0.004* -0.005*** -0.003 -0.004**
(0.002) (0.002) (0.002) (0.002) (0.002) (0.002)
Casht-1 -0.124*** -0.223*** -0.142***
(0.006) (0.010) (0.006)
Mkt_lev t-1 0.008*** 0.017*** 0.028*** 0.010*** 0.018***
(0.002) (0.003) (0.003) (0.002) (0.002)
Profit t-1 -0.003 -0.008 -0.002 -0.003 0.008*
(0.003) (0.006) (0.007) (0.004) (0.004)
Mkt_bk t-1 0.002*** 0.001 -0.000 0.002*** -0.001
(0.001) (0.001) (0.001) (0.001) (0.001)
Assets t-1 0.000* 0.003*** 0.006*** 0.001*** 0.002***
(0.000) (0.001) (0.001) (0.000) (0.000)
PPE t-1 -0.005*** 0.005 0.062*** -0.003 0.017***
(0.001) (0.006) (0.007) (0.002) (0.002)
R_D t-1 0.156*** 0.009 0.039 0.124*** 0.041**
(0.015) (0.047) (0.053) (0.020) (0.018)
Constant -0.001*** 0.002 -0.011 -0.080*** -0.001 -0.026***
(0.000) (0.002) (0.008) (0.009) (0.003) (0.003)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
N 25,278 22,707 22,707 22,707 22,707 22,707
R2 0.001 0.042 0.145 0.101 0.052 0.013
178
Panel B - Unpredicted Changes in Credit Ratings
(1) (2) (3) (4) (5) (6)
Down_NoDownt-1 0.011*** 0.009*** 0.007*** 0.009*** 0.008*** 0.009***
(0.001) (0.001) (0.001) (0.002) (0.001) (0.001)
Upgr_NoUpgrt-1 -0.005*** -0.005*** -0.005** -0.005** -0.005*** -0.005***
(0.002) (0.002) (0.002) (0.002) (0.002) (0.002)
Casht-1 -0.125*** -0.223*** -0.143***
(0.005) (0.010) (0.006)
Mkt_lev t-1 0.006*** 0.016*** 0.027*** 0.008*** 0.016***
(0.002) (0.003) (0.003) (0.002) (0.002)
Profit t-1 -0.002 -0.007 -0.002 -0.002 0.009**
(0.003) (0.006) (0.007) (0.004) (0.004)
Mkt_bk t-1 0.002*** 0.001 -0.000 0.002*** -0.000
(0.001) (0.001) (0.001) (0.001) (0.001)
Assets t-1 0.000** 0.003*** 0.006*** 0.001*** 0.002***
(0.000) (0.001) (0.001) (0.000) (0.000)
PPE t-1 -0.006*** 0.004 0.061*** -0.004 0.016***
(0.001) (0.006) (0.007) (0.002) (0.002)
R_D t-1 0.156*** 0.012 0.045 0.125*** 0.042**
(0.014) (0.047) (0.053) (0.020) (0.018)
Constant -0.001*** 0.002 -0.010 -0.078*** -0.001 -0.027***
(0.000) (0.002) (0.008) (0.009) (0.003) (0.003)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
N 25,278 22,707 22,707 22,707 22,707 22,707
R2 0.003 0.043 0.146 0.102 0.054 0.014
Panel C – Unrealized but Predicted Changes in Credit Ratings
(1) (2) (3) (4) (5) (6)
NoDown_Downt-1 0.001* -0.001* -0.003** -0.003** -0.001* -0.000
(0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
NoUpgr_Upgrt-1 0.002*** 0.002*** 0.003** 0.002 0.002** 0.001
(0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
Casht-1 -0.127*** -0.225*** -0.144***
(0.006) (0.010) (0.006)
Mkt_lev t-1 0.007*** 0.016*** 0.027*** 0.009*** 0.017***
(0.002) (0.003) (0.003) (0.002) (0.002)
Profit t-1 -0.003 -0.007 -0.002 -0.003 0.008*
(0.003) (0.006) (0.007) (0.004) (0.004)
Mkt_bk t-1 0.002*** 0.001 -0.000 0.002*** -0.001
(0.001) (0.001) (0.001) (0.001) (0.001)
Assets t-1 0.001*** 0.003*** 0.006*** 0.001*** 0.002***
(0.000) (0.001) (0.001) (0.000) (0.000)
PPE t-1 -0.006*** 0.005 0.063*** -0.003 0.017***
(0.001) (0.006) (0.007) (0.002) (0.002)
R_D t-1 0.159*** 0.009 0.042 0.128*** 0.044**
(0.014) (0.046) (0.053) (0.020) (0.018)
Constant -0.001*** 0.001 -0.012 -0.082*** -0.003 -0.027***
(0.000) (0.002) (0.008) (0.009) (0.003) (0.003)
Firm FE No No Yes Yes No No
Industry FE No No No No Yes Yes
N 25,278 22,707 22,707 22,707 22,707 22,707
R2 0.000 0.042 0.145 0.101 0.052 0.012
179
Table 11 – Partial Adjustment in Market Leverage by Predicted and Unpredicted Changes in Credit Ratings for Investment Grade and Speculative Grade Firms This replicate the regressions presented in Table 8 while conditioning the sample by investment grade firms (credit rating higher or equal to BBB-) and speculative grade firms (credit ratings lower than BBB-). The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels the columns (2) and (3) estimate the impact on changes in market leverage while employing firm fixed effects, while columns (5) and (6) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
180
Panel A – Predicted Change in Credit Rating
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Down_Downt-1 -0.005 -0.001 -0.009 0.007 0.007 0.001 -0.027*** -0.017 -0.039** -0.005 -0.008 -0.027**
(0.004) (0.006) (0.006) (0.005) (0.005) (0.005) (0.010) (0.016) (0.016) (0.012) (0.012) (0.012) Upgr_Upgrt-1 0.016*** 0.009 0.014 0.007 0.005 0.008 -0.001 0.019*** 0.029*** -0.012** -0.007 0.002
(0.006) (0.009) (0.009) (0.007) (0.007) (0.007) (0.004) (0.007) (0.007) (0.005) (0.006) (0.006)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level
Dependent Variable No Yes No Yes Yes No No Yes No Yes Yes No
Firm FE No Yes Yes No Yes Yes No Yes Yes No Yes Yes
Industry FE No No No No Yes Yes No No No No Yes Yes
N 13,158 7,759 7,759 7,759 7,759 7,759 12,120 6,844 6,844 6,844 6,844 6,844
R2 0.001 0.229 0.191 0.022 0.053 0.034 0.001 0.272 0.234 0.054 0.087 0.050
Panel B - Unpredicted Changes in Credit Ratings
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Down_NoDownt-1 -0.008 -0.017** -0.021*** -0.005 -0.007 -0.010 -0.041*** -0.051*** -0.063*** -0.020*** -0.024***
-0.035***
(0.005) (0.007) (0.007) (0.006) (0.006) (0.006) (0.005) (0.008) (0.008) (0.006) (0.006) (0.006) Upgr_NoUpgrt-1 0.011*** 0.005 0.011*** 0.002 0.001 0.005 0.011 0.029* 0.034** 0.015 0.013 0.017
(0.003) (0.004) (0.004) (0.003) (0.003) (0.003) (0.008) (0.016) (0.015) (0.011) (0.012) (0.011)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level
Dependent Variable No Yes No Yes Yes No No Yes No Yes Yes No
Firm FE No Yes Yes No Yes Yes No Yes Yes No Yes Yes
Industry FE No No No No Yes Yes No No No No Yes Yes
N 13,158 7,759 7,759 7,759 7,759 7,759 12,120 6,844 6,844 6,844 6,844 6,844
R2 0.001 0.231 0.193 0.022 0.053 0.034 0.008 0.282 0.247 0.056 0.090 0.056
181
Panel C - Unrealized but Predicted Changes in Credit Ratings
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
NoDown_Downt-1 -0.003* -0.001 -0.001 -0.005** -0.005** -0.005** -0.026** -0.020 -0.031 0.005 0.005 -0.018 (0.001) (0.004) (0.004) (0.002) (0.002) (0.002) (0.011) (0.023) (0.025) (0.015) (0.016) (0.016) NoUpgr_Upgrt-1 0.004 0.018*** 0.021*** 0.009* 0.013*** 0.015*** -0.015*** -0.003 0.001 -0.010*** -0.008** -0.002 (0.004) (0.006) (0.007) (0.005) (0.005) (0.005) (0.003) (0.006) (0.006) (0.003) (0.004) (0.004)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level
Dependent Variable No Yes No Yes Yes No No Yes No Yes Yes No
Firm FE No Yes Yes No Yes Yes No Yes Yes No Yes Yes
Industry FE No No No No Yes Yes No No No No Yes Yes
N 13,158 7,759 7,759 7,759 7,759 7,759 12,120 6,844 6,844 6,844 6,844 6,844
R2 0.000 0.230 0.192 0.023 0.054 0.035 0.003 0.271 0.231 0.055 0.088 0.049
182
Table 12 – Partial Adjustment in Net Debt Issuances by Predicted and
Unpredicted Changes in Credit Ratings for Investment Grade and Speculative Grade Firms
This table replicates the regressions presented in Table 9 while conditioning the sample by investment grade firms (credit rating higher or equal to BBB-) and speculative grade firms (credit ratings lower than BBB-). The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels the columns (2) and (3) estimate the impact on changes in net debt while employing firm fixed effects, while columns (5) and (6) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
183
Panel A – Predicted Change in Credit Rating
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Down_Downt-1 -0.025*** -0.023*** -0.025*** -0.021*** -0.021*** -0.022*** -0.018 -0.024 -0.029 -0.037*** -0.038*** -0.042***
(0.005) (0.007) (0.007) (0.006) (0.006) (0.006) (0.014) (0.021) (0.021) (0.013) (0.014) (0.014) Upgr_Upgrt-1 0.039*** 0.041*** 0.037*** 0.043*** 0.041*** 0.039*** 0.041*** 0.031*** 0.031*** 0.028*** 0.029*** 0.031***
(0.007) (0.010) (0.010) (0.009) (0.009) (0.008) (0.006) (0.008) (0.008) (0.006) (0.006) (0.006)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level Dependent Variable
No Yes No Yes Yes No No Yes No Yes Yes No
Firm FE No Yes Yes No Yes Yes No Yes Yes No Yes Yes
Industry FE No No No No Yes Yes No No No No Yes Yes
N 11,703 6,605 6,852 6,605 6,605 6,852 11,114 6,114 6,277 6,114 6,114 6,277
R2 0.056 0.088 0.091 0.010 0.018 0.019 0.093 0.156 0.157 0.014 0.029 0.030
Panel B - Unpredicted Changes in Credit Ratings
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Down_NoDownt-1 -0.029*** -0.030*** -0.033*** -0.023*** -0.025*** -0.029*** -0.022*** -0.028*** -0.027*** -0.025*** -0.026*** -0.025***
(0.007) (0.010) (0.010) (0.008) (0.008) (0.008) (0.005) (0.008) (0.007) (0.005) (0.006) (0.005)
Upgr_NoUpgrt-1 0.015*** 0.010* 0.009 0.007 0.007 0.006 0.027** 0.007 0.008 0.013 0.013 0.013
(0.004) (0.005) (0.005) (0.004) (0.005) (0.005) (0.011) (0.016) (0.016) (0.011) (0.011) (0.011)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level Dependent Variable
No Yes No Yes Yes No No Yes No Yes Yes No
Firm FE No Yes Yes No Yes Yes No Yes Yes No Yes Yes
Industry FE No No No No Yes Yes No No No No Yes Yes
N 11,703 6,605 6,852 6,605 6,605 6,852 11,114 6,114 6,277 6,114 6,114 6,277
R2 0.053 0.085 0.090 0.004 0.014 0.015 0.091 0.156 0.156 0.013 0.028 0.028
184
Panel C - Unrealized but Predicted Changes in Credit Ratings
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
NoDown_Downt-1 0.006** 0.001 0.002 -0.001 -0.001 -0.001 -0.009 -0.060** -0.058** -0.023 -0.041*** -0.045***
(0.003) (0.005) (0.004) (0.002) (0.003) (0.003) (0.022) (0.023) (0.023) (0.014) (0.014) (0.014) NoUpgr_Upgrt-1 0.009* 0.010 0.011 0.007* 0.009** 0.010**
0.013**
* -0.001 -0.001 0.002 0.002 0.002
(0.005) (0.007) (0.007) (0.004) (0.004) (0.004) (0.004) (0.006) (0.006) (0.003) (0.003) (0.003)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level Dependent Variable
No Yes No Yes Yes No No Yes No Yes Yes No
Firm FE No Yes Yes No Yes Yes No Yes Yes No Yes Yes
Industry FE No No No No Yes Yes No No No No Yes Yes
N 11,703 6,605 6,852 6,605 6,605 6,852 11,114 6,114 6,277 6,114 6,114 6,277
R2 0.049 0.081 0.085 0.002 0.011 0.012 0.089 0.154 0.154 0.009 0.025 0.026
185
Table 13 – Partial Adjustment in Cash Holdings by Predicted and Unpredicted Changes in Credit Ratings for Investment Grade and Speculative Grade Firms This table replicates the regressions presented in Table 10 while conditioning the sample by investment grade firms (credit rating higher or equal to BBB-) and speculative grade firms (credit ratings lower than BBB-). The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels the column (2) estimate the impact on changes in cash holdings while employing firm fixed effects, while column (3) employ industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
186
Panel A – Predicted Change in Credit Rating
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Down_Downt-1 0.005*** 0.003 0.002 0.004 0.003 0.005** 0.017*** 0.010*** 0.008* 0.012*** 0.010*** 0.014***
(0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.003) (0.003) (0.004) (0.004) (0.003) (0.004) Upgr_Upgrt-1 -0.005* -0.003 -0.000 -0.001 -0.003 -0.004 -0.001 -0.002 -0.005** -0.006** -0.003 -0.003*
(0.003) (0.002) (0.003) (0.003) (0.003) (0.003) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level Dependent Variable
No Yes Yes No Yes No No Yes Yes No Yes No
Firm FE No No Yes Yes No No No No Yes Yes No No
Industry FE No No No No No No No No No No No No
N 13,158 12,184 12,184 12,184 12,184 12,184 12,120 10,523 10,523 10,523 10,523 10,523
R2 0.001 0.036 0.113 0.060 0.048 0.012 0.002 0.050 0.194 0.164 0.066 0.024
Panel B - Unpredicted Changes in Credit Ratings
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
Down_NoDownt-1 0.003* 0.002 0.002 0.003 0.002 0.002 0.015*** 0.010*** 0.009*** 0.010*** 0.010*** 0.011***
(0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.002) Upgr_NoUpgrt-1 -0.006*** -0.004* -0.004* -0.005** -0.004** -0.005** -0.004 -0.007** -0.006 -0.006 -0.007* -0.006
(0.002) (0.002) (0.002) (0.002) (0.002) (0.002) (0.003) (0.003) (0.005) (0.005) (0.004) (0.004)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level Dependent Variable
No Yes Yes No Yes No No Yes Yes No Yes No
Firm FE No No Yes Yes No No No No Yes Yes No No
Industry FE No No No No No No No No No No No No
N 13,158 12,184 12,184 12,184 12,184 12,184 12,120 10,523 10,523 10,523 10,523 10,523
R2 0.001 0.036 0.114 0.060 0.049 0.012 0.006 0.052 0.195 0.166 0.068 0.026
187
Panel C - Unrealized but Predicted Changes in Credit Ratings
Investment Grade Firms Speculative Grade Firms
(1) (2) (3) (4) (5) (6) (1) (2) (3) (4) (5) (6)
NoDown_Downt-1 -0.000 -0.000 -0.002 -0.002 -0.001 -0.000 -0.007 -0.008* -0.013* -0.012* -0.009* -0.009*
(0.001) (0.001) (0.001) (0.001) (0.001) (0.001) (0.005) (0.005) (0.007) (0.007) (0.005) (0.005) NoUpgr_Upgrt-1 0.001 0.001 0.002 0.001 0.001 0.000 0.004*** 0.001 0.002 0.002 0.001 0.001
(0.001) (0.001) (0.002) (0.002) (0.002) (0.002) (0.001) (0.001) (0.002) (0.002) (0.001) (0.001)
Controls No Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes
Lagged Level Dependent Variable
No Yes Yes No Yes No No Yes Yes No Yes No
Firm FE No No Yes Yes No No No No Yes Yes No No
Industry FE No No No No No No No No No No No No
N 13,158 12,184 12,184 12,184 12,184 12,184 12,120 10,523 10,523 10,523 10,523 10,523
R2 0.000 0.035 0.114 0.060 0.048 0.011 0.001 0.049 0.194 0.163 0.065 0.023
188
Table 14 – Partial Adjustment in Market Leverage by Predicted and Unpredicted Changes in Credit Ratings and by Year
This replicate the regressions presented in Table 8 while conditioning the sample by intervals of 5 years. The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels, equation (1) replicates equation (2) from Table 8 and employs firm fixed effects, while equation (2) replicates equation (5) from Table 8 and employs industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
189
Panel A - Predicted Change in Credit
Rating Panel B - Unpredicted Changes in Credit Ratings
Panel C - Unrealized but Predicted Changes in Credit Ratings
1986-1990 1991-1995 1986-1990 1991-1995 1986-1990 1991-1995
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
Down_Downt-1 -0.050** -0.010 -0.011 0.004 -0.084*** -0.038** -0.057* -0.032 0.031* -0.009 0.002 -0.006 (0.021) (0.013) (0.018) (0.013) (0.027) (0.018) (0.030) (0.020) (0.018) (0.009) (0.014) (0.006)
Upgr_Upgrt-1 -0.037 -0.027 0.051** 0.012 0.017 0.004 0.042* 0.025 0.045* 0.014 -0.005 0.004
(0.032) (0.019) (0.024) (0.017) (0.017) (0.012) (0.022) (0.015) (0.025) (0.012) (0.024) (0.011)
N 1,484 1,484 1,228 1,228 1,484 1,484 1,228 1,228 1,484 1,484 1,228 1,228
R2 0.445 0.195 0.367 0.223 0.456 0.200 0.381 0.232 0.444 0.196 0.361 0.223
1996-2000 2001-2005 1996-2000 2001-2005 1996-2000 2001-2005
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
Down_NoDownt-1 -0.036 -0.006 -0.023* 0.006 -0.065*** -0.031** -0.050*** -0.015* 0.019 0.005 0.005 -0.004 (0.024) (0.015) (0.014) (0.009) (0.024) (0.014) (0.013) (0.009) (0.018) (0.007) (0.008) (0.004)
Upgr_NoUpgrt-1 0.058** 0.005 0.023* -0.012 0.024 -0.004 0.010 -0.008 0.028 0.013 0.003 -0.004
(0.029) (0.017) (0.012) (0.008) (0.023) (0.013) (0.012) (0.007) (0.028) (0.009) (0.010) (0.005)
N 2,466 2,466 3,808 3,808 2,466 2,466 3,808 3,808 2,466 2,466 3,808 3,808
R2 0.409 0.123 0.333 0.105 0.414 0.126 0.343 0.106 0.406 0.124 0.331 0.105
2006-2010 2011-2015 2006-2010 2011-2015 2006-2010 2011-2015
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
NoDown_Downt-1 -0.053*** -0.028** -0.007 0.022* -0.089*** -0.033*** -0.053*** -0.009 0.001 -0.012* -0.008 0.005 (0.017) (0.012) (0.020) (0.011) (0.016) (0.011) (0.018) (0.011) (0.015) (0.006) (0.011) (0.005) NoUpgr_Upgrt-1 0.056*** 0.018* 0.019
-0.015* 0.042*** 0.021** 0.022* 0.007 -0.022* -0.013** -0.004 -0.004 (0.014) (0.010) (0.013) (0.008) (0.016) (0.011) (0.011) (0.008) (0.012) (0.006) (0.012) (0.005)
N 3,231 3,231 2,386 2,386 3,231 3,231 2,386 2,386 3,231 3,231 2,386 2,386
R2 0.277 0.087 0.458 0.204 0.293 0.091 0.466 0.202 0.269 0.086 0.457 0.202
Controls Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Lagged Level Dependent
Variable Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Firm FE Yes No Yes No Yes No Yes No Yes No Yes No
Industry FE No Yes No Yes No Yes No Yes No Yes No Yes
190
Table 15 – Partial Adjustment in Net Debt Issuance by Predicted and Unpredicted Changes in Credit Ratings and by Year
This table replicates the regressions presented in Table 9 while conditioning the sample by intervals of 5 years. The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7.
The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels, equation (1) replicates equation (2) from Table 9 and employs firm fixed effects, while equation (2) replicates equation (5) from Table 9 and employs industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
191
1986-1990 1991-1995 1986-1990 1991-1995 1986-1990 1991-1995
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
Down_Downt-1 -0.025 -0.038** -0.018 -0.010 -0.125*** -0.099*** -0.007 0.002 0.028 0.025*** -0.016 -0.012 (0.029) (0.019) (0.030) (0.020) (0.038) (0.027) (0.022) (0.015) (0.021) (0.009) (0.022) (0.010) Upgr_Upgrt-1 -0.007 0.023 0.042* 0.034* -0.024 -0.003 -0.020 -0.014 0.049 0.018 0.000 -0.006
(0.049) (0.035) (0.025) (0.018) (0.022) (0.014) (0.022) (0.015) (0.037) (0.016) (0.023) (0.011) N 1,262 1,262 1,114 1,114 1,262 1,262 1,114 1,114 1,262 1,262 1,114 1,114 R2 0.313 0.096 0.299 0.092 0.345 0.120 0.296 0.088 0.317 0.095 0.295 0.089
1996-2000 2001-2005 1996-2000 2001-2005 1996-2000 2001-2005
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
Down_NoDownt-1 -0.046* -0.046*** -0.007 -0.017 -0.040* -0.028** -0.019 -0.017** 0.010 -0.002 -0.010 -0.002 (0.028) (0.016) (0.019) (0.011) (0.024) (0.013) (0.013) (0.008) (0.022) (0.007) (0.014) (0.006) Upgr_NoUpgrt-1 0.059 0.061*** 0.035** 0.028*** 0.035 0.030** 0.004 0.008 0.035 0.016* 0.007 -0.000
(0.037) (0.018) (0.015) (0.010) (0.027) (0.015) (0.016) (0.010) (0.030) (0.009) (0.013) (0.005) N 2,070 2,070 3,184 3,184 2,070 2,070 3,184 3,184 2,070 2,070 3,184 3,184 R2 0.325 0.078 0.200 0.031 0.324 0.071 0.198 0.030 0.321 0.067 0.197 0.028
2006-2010 2011-2015 2006-2010 2011-2015 2006-2010 2011-2015
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
NoDown_Downt-1 -0.032* -0.039*** -0.027 -0.022 -0.024* -0.020** -0.022 -0.022* -0.004 0.000 -0.025 -0.009 (0.018) (0.012) (0.044) (0.024) (0.014) (0.009) (0.022) (0.012) (0.015) (0.006) (0.025) (0.007) NoUpgr_Upgrt-1 0.044*** 0.037*** 0.028* 0.029*** 0.012 0.014 0.010 0.008 -0.017 -0.009* 0.001 -0.003
(0.014) (0.010) (0.016) (0.010) (0.016) (0.010) (0.018) (0.012) (0.011) (0.005) (0.016) (0.006) N 2,898 2,898 2,191 2,191 2,898 2,898 2,191 2,191 2,898 2,898 2,191 2,191 R2 0.186 0.040 0.248 0.058 0.181 0.033 0.246 0.055 0.180 0.031 0.246 0.053
Controls Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Lagged Level
Dependent Variable Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Firm FE Yes No Yes No Yes No Yes No Yes No Yes No
Industry FE No Yes No Yes No Yes No Yes No Yes No Yes
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Table 16 – Partial Adjustment in Cash Holdings by Predicted and Unpredicted Changes in Credit Ratings and by Year
This table replicates the regressions presented in Table 10 while conditioning the sample by intervals of 5 years. The variable Upgr_Upgr (Down_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable Upgr_NoUpgr (Down_NoDown) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should not be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. The variable NoUpgr_Upgr (NoDown_Down) is an iteration term between two dummy variables. The first dummy variable takes the value of 1 if the firm was not upgraded (downgraded) and zero otherwise, while the second dummy variable takes the value of 1 if the firm should be upgraded (downgraded) based on its fundamentals, using the specification (1) from Table 7. For all panels, equation (1) replicates equation (2) from Table 10 and employs firm fixed effects, while equation (2) replicates equation (5) from Table 10 and employs industry fixed effects based on the three-digit SIC codes. Standard errors are clustered at firm’s level for all equations. *, ** and *** represent significance levels of 10%, 5% and 1%, respectively.
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Panel A - Predicted Change in Credit Rating
Panel B - Unpredicted Changes in Credit Ratings
Panel C - Unrealized but Predicted Changes in Credit Ratings
1986-1990 1991-1995 1986-1990 1991-1995 1986-1990 1991-1995
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
Down_Downt-1 0.003 0.003 0.004 0.005 -0.001 -0.003 0.011 0.011*** -0.005 -0.001 0.000 -0.001
(0.006) (0.005) (0.005) (0.004) (0.008) (0.005) (0.007) (0.004) (0.005) (0.002) (0.006) (0.002)
Upgr_Upgrt-1 0.005 0.002 -0.006 -0.001 -0.017* -0.014** -0.002 0.001 0.007 0.003 0.015** 0.005
(0.011) (0.007) (0.009) (0.006) (0.010) (0.007) (0.007) (0.005) (0.009) (0.004) (0.007) (0.003)
N 2,416 2,416 2,902 2,902 2,416 2,416 2,902 2,902 2,416 2,416 2,902 2,902
R2 0.305 0.137 0.271 0.095 0.308 0.139 0.272 0.096 0.306 0.137 0.274 0.095
1996-2000 2001-2005 1996-2000 2001-2005 1996-2000 2001-2005
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
Down_NoDownt-1 0.001 0.001 0.005 0.010*** 0.008 0.007* 0.007* 0.007** -0.003 -0.003 -0.005 -0.001 (0.005) (0.004) (0.004) (0.003) (0.006) (0.004) (0.004) (0.003) (0.004) (0.002) (0.004) (0.002) Upgr_NoUpgrt-1 -0.000 0.002 -0.009 -0.008* -0.013* -0.010** -0.008 -0.008 0.005 0.000 0.011*** 0.005***
(0.006) (0.005) (0.006) (0.004) (0.007) (0.005) (0.009) (0.006) (0.005) (0.003) (0.003) (0.002)
N 4,261 4,261 4,954 4,954 4,261 4,261 4,954 4,954 4,261 4,261 4,954 4,954
R2 0.279 0.069 0.223 0.071 0.282 0.071 0.223 0.069 0.280 0.069 0.225 0.069
2006-2010 2011-2015 2006-2010 2011-2015 2006-2010 2011-2015
(1) (2) (1) (2) (1) (2) (1) (2) (1) (2) (1) (2)
NoDown_Downt-1 0.006 0.007 -0.006 -0.002 0.012*** 0.011*** 0.008 0.006* -0.009* -0.003 0.006 0.007**
(0.006) (0.005) (0.012) (0.007) (0.004) (0.003) (0.005) (0.004) (0.005) (0.002) (0.008) (0.003) NoUpgr_Upgrt-1 -0.005 -0.002 -0.004 -0.003 -0.005 -0.005 -0.008 -0.001 0.007** 0.003 0.007** 0.002
(0.004) (0.003) (0.004) (0.003) (0.005) (0.004) (0.008) (0.006) (0.004) (0.002) (0.003) (0.002)
N 4,531 4,531 3,643 3,643 4,531 4,531 3,643 3,643 4,531 4,531 3,643 3,643
R2 0.223 0.080 0.257 0.065 0.225 0.082 0.258 0.065 0.224 0.080 0.258 0.067
Controls Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Lagged Level Dependent
Variable Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes
Firm FE Yes No Yes No Yes No Yes No Yes No Yes No
Industry FE No Yes No Yes No Yes No Yes No Yes No Yes
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