Credit Rating and Capital Structure for Norwegian Listed Firms
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We examine how credit ratings affect capital structure of Norwegian listed firms. The data sample comprises 216 companies listed on the Oslo Stock Exchange in the period 2004 to 2010. Three concerns for credit rating are investigated. The first identifies which effect access to the public market, measured by having a credit rating, have on leverage. Secondly, we examine how being near a change in rating level influences decisions regarding leverage. Finally we investigate how firms decide upon leverage after a change in rating. The empirical analysis consists of regressions on panel data models that explain variation in leverage. We model three tests and include proxies for credit rating considerations to capture their influence on capital structure. Overall we identify that firms are affected of participating in the bond market and take credit ratings into consideration when deciding about capital structure. Participating in the bond market is found to provide a 6.94% higher long term debt ratio than other listed firms. Long term debt is increased by more tangible assets and reduced with increased size. Furthermore, access to capital is found to be most influential for high yield firms, confirming their reliance on the bond market for achieving necessary capital. For firms participating in the public debt market we find no evidence that credit ratings explain variation in leverage. However, concerns for credit ratings are found to influence leverage adjustments. Firms participating in the public debt market are found to reduce long term debt when being near a change in rating. Firms issuing new bonds during the period are found to make larger reduction in long term debt, as well as they reduce their total debt as well. We conclude that Norwegian firms are especially concerned about their credit ratings when making new debt issues.