Rating and capital structure: How do the signs affect the speed of adjustment?

摘要

Standard and Poor's ratings can be modified by the addition of a plus (+) or minus (-) sign to show the relative standing within each major rating category. In this paper, we analyze the influence of these signs on the speed of leverage adjustment for listed European companies in the 2004-2014 period. Our results indicate that (a) when a qualification is accompanied by a minus sign, it adjusts more slowly than qualifications either with a plus sign or without a sign; (b) when a rating has a plus sign, the adjustment is slower than when it has no sign; and (c) when a qualification is BBB-, the speed of its leverage adjustment is close to zero. These results suggest that companies with signs in their ratings decrease their speed of adjustment to the target leverage ratio. In addition, such companies are especially concerned about a credit rating downgrade when it implies a possible loss of the degree of investment (BBB-).