The strategy and direction of Taiwan's high-tech industry development has been clear and focused. Industry, institutions and government bodies all followed developmental guidelines as set forth in the promotion plan for the high-tech industry over the past three decades. This study examines to what extent credit ratings directly affect capital structure decisions of the Taiwan government’s fully supported industry (high-tech companies) over the period of 2000 to 2012 .My research provides evidence that when companies’ fundamentals are close to prompting a rating change, managements make financing decisions to issue equity rather than debt (or reduce debt rather than equity).

This paper uses OLS multiple regression analysis to test three models. We concluded that credit rating directly affects capital structure decisions and that Taiwanese high-tech companies that incur credit rating upgrades would issue less debt relative to equity, consistent with the previous finding by Kisgen (2006). On the other hand, companies with credit rating downgrades would issue more debt rather than equity, which does not concur with Kisgen (2006) but barely supports the pecking order theory.

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