|
Article
| Review of Financial Studies
| Forthcoming
The Real Consequences of Market Segmentation
by
Sergey Chernenko and Adi Sunderam
|
Abstract
We study the real effects of market segmentation due to credit ratings 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-grade to speculative-grade, not with changes in continuous measures of credit quality. We do not find similar effects at other rating boundaries.
Keywords: Segmentation;
Credit;
Investment;
Investment Funds;
Quality;
Markets;
Measurement and Metrics;
Business Ventures;