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The determinants of corporate cost of debt during a financial crisis

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  • Tanin, Tauhidul Islam
  • Sarker, Ashutosh
  • Hammoudeh, Shawkat
  • Batten, Jonathan A.

Abstract

Panel data from publicly listed US industrial firms is used to investigate how firm-specific cost of debt (COD) determinants impact COD at different quantiles during a financial crisis. Six COD determinants: firm size, firm age, profitability, leverage, liquidity, and firm value, and advanced estimators: robust and bootstrapped fixed effects, bias-corrected least square dummy variable (LSDVC), and quantile regression, are employed within the context of pecking-order theory. The results show that firm size and leverage negatively impact COD, while liquidity positively impacts it when COD is high (90% quantile). The degree of profitability only confirms the pecking order theory when COD is extremely low (10% quantile) and contrasts with the theory for the 25% and above COD quantiles during the Global Financial Crisis (GFC). These findings confirm that the practicalities of access to finance matter during a financial crisis for corporate financing decisions.

Suggested Citation

  • Tanin, Tauhidul Islam & Sarker, Ashutosh & Hammoudeh, Shawkat & Batten, Jonathan A., 2024. "The determinants of corporate cost of debt during a financial crisis," The British Accounting Review, Elsevier, vol. 56(6).
    • Handle: RePEc:eee:bracre:v:56:y:2024:i:6:s0890838924001392
    DOI: 10.1016/j.bar.2024.101390
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    More about this item

    Keywords

    Cost of debt; Fixed effects and LSDVC; Quantile regression; Global financial crisis (GFC); COVID-19 pandemic;
    All these keywords.

    JEL classification:

    • B26 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Financial Economics
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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