Working Paper: NBER ID: w23066
Authors: Francesco Dacunto; Ryan Liu; Carolin Pflueger; Michael Weber
Abstract: 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 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: price flexibility; financial leverage; bank deregulation
JEL Codes: E12; E44; G28; G32; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Price flexibility (D41) | Long-term leverage ratio (G32) |
| Sticky-price firms (C54) | Increase in leverage post-IBBEA (G32) |
| Lower cash-to-assets ratio (G32) | Significant increase in leverage for sticky-price firms (D21) |
| IBBEA (L59) | Long-term debt for sticky-price firms (G32) |
| Sticky-price firms with lower cash-to-assets ratios (G32) | Increase in leverage (G32) |
| Flexible-price firms (L11) | Maintain leverage levels (G32) |
| Sticky-price firms (C54) | Greater increases in leverage compared to flexible-price firms (D21) |