Plausibly Exogenous [1742] - Financial Leverage (11/09/2024)

LHS Variable
Financial leverage

RHS Variable
Profitability

Source of Exogenous Variation
Quasi-natural experiment that increased profitability for a subset of firms: the Federal Trademark Dilution Act (FTDA) of 1996. This trademark law strengthened the protection of a subset of trademarks—those deemed “famous”—reducing market contestability and effectively increasing market power for firms holding those trademarks. Because of the increased market power, treated firms experienced higher profitability until the FTDA was unexpectedly revoked seven years later

- Heath and Sertsios (2021), “Profitability and financial leverage: Evidence from a quasi-natural experiment”