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Flexible prices and leverage
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DOI：10.1016/j.jfineco.2018.03.009.png)
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Abstract
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The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most flexible-price firms have a 19% higher long-term leverage ratio than the most sticky-price firms, controlling for known determinants of capital structure. Sticky-price firms increased leverage more than flexible price firms following the staggered implementation of bank deregulation across states and over time, which we use in a difference-in-differences strategy. Firms' frequency of price adjustment did not change around the deregulation. (C) 2018 Elsevier B.V. All rights reserved.
Keywords:
Capital structure
Nominal rigidities
Bank deregulation
Industrial organization and finance
Price setting
Bankruptcy
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