The Real Consequences of Market Segmentation
Review of Financial Studies
2012
We study the real effects of market segmentation due to credit ratings by using a matched sample of firms just above and just below the investment-grade cutoff. These firms have similar observables, including average investment rates. However, flows into high-yield mutual funds have an economically significant effect on the issuance and investment of the speculative-grade firms relative to their matches, especially for firms likely to be financially constrained. The effect is associated with the discrete change in label from investment- to speculative-grade, not with changes in continuous measures of credit quality. We do not find similar effects at other rating boundaries.
- DOI
- 10.1093/rfs/hhr143
- Volume
- 25 (7)
- Pages
- 2041-2069
- Language
- en
- Export
- BibTeX
- Sources
- openalex crossref