Abstract
AbstractWe study the capital structure changes of drug firms after an investment-opportunity shock brought about by the Biologics Price Competition and Innovation Act. Using a difference-in-difference approach, we show that the shock led drug firms to make their capital structures less constraining by decreasing leverage, shortening debt maturity, increasing unsecured debt, and reducing convertible debt. New debt covenants became less restrictive and firms raised equity to preserve borrowing capacity. Our results support the view that firms actively manage their capital structures to bolster financial flexibility and increase debt capacity in response to new investment opportunities.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
