This study examines the effect of credit rating changes on managers’ capital structure
decisions in Greek listed firms. It is an attempt to combine traditional capital structure
theories with the modern credit rating-capital structure hypothesis (CR-CS). Many of
the theoretically proposed determinants of leverage appear insignificant in this study.
Leverage ratios present on average ambiguous variations around the year of credit rating
change. Firms close to a credit rating change appear to issue more debt relative to equity
no matter the direction of the change. On the contrary, these results are persistent with
companies that expect to be downgraded from investment to speculation grade. The
overall results are partly consistent with the CR-CS theory.
Keywords: Credit ratings, agency costs, capital structure, leverage
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