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CESifo Working Paper Details

Flexible Prices and Leverage

Francesco D'Acunto, Ryan Liu, Carolin Pflueger, Michael Weber (Website)

CESifo Working Paper No. 6317 (January 2017)

Primary CESifo Category: [7] Monetary Policy and International Finance

Abstract:
The frequency with which firms adjust output prices helps explain persistent differences in capital structure across firms. Unconditionally, the most exible-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 exible-price firms following the staggered implementation of the Interstate Banking and Branching Efficiency Act 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.


Keywords: capital structure, nominal rigidities, bank deregulation, industrial organization and finance, price setting, bankruptcy

JEL Classification:
[E120] General Aggregative Models: Keynes; Keynesian; Post-Keynesian
[E440] Financial Markets and the Macroeconomy
[G280] Financial Institutions and Services: Government Policy and Regulation
[G320] Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
[G330] Bankruptcy; Liquidation

Additional CESifo Category:
[6] Fiscal Policy, Macroeconomics and Growth

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