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Article review: Do Firms Target Credit Ratings or Leverage Levels?
Do Firms Target Credit Ratings Or Leverage Levels? Article Review
Length: 3 pages (900 Words)
Do Firms Target Credit Ratings or Leverage Levels?
Credit ratings are essential in that they guarantee that there is the equilibrium in bond investments. This signifies that maintaining a level of credit ensures that a firm can issue a commercial paper and have an unrestricted access to the bond investor's information. Additionally, the firm will be able to lessen its disclosure requirements, reduce the investor capital reserve requirements, and enhance the third-party relationships and to have an access to Eurobond markets. Accordingly, these benefits are relevant to devising the firm's optimal leverage, given that it affects the credit rating of any given firm. Besides, credit rating levels impart benefits at discrete levels of ratings, indicating that a firm's value progresses at certain levels of leverage. This paper is a summary of an investigation on how changes in credit ratings affect a firm's subsequent capital structure decisions.