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The impact of credit rating and frequent refinancing on firm value

  • Rating affects corporate credit costs and leverage choices. Therefore, we develop a corporate valuation model where the choice of leverage is consistent with the implied cost of debt of the rating class. We explicitly model the trigger, the consequences, and the analytical probability of bankruptcy. Further, we develop a financing policy where the firm refinances with a predefined frequency. To conclude, we develop value implications of rating and financing policy which are in line with the trade-off theory in capital structure theory.

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Document Type:Working Paper
Author:Alexander LahmannORCiD, Bernhard SchwetzlerORCiD
Chairs and Professorships:Chair of Financial Management
Year of Completion:2012
Available at SSRN (Social Science Research Network), Link see below