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The Dynamics of Corporate Debt Structure

Author

Listed:
  • Zechner, Josef
  • Halling, Michael
  • Yu, Jin

Abstract

We find that US public firms spread out their debt more across different sources in recession quar- ters, making measures of debt concentration move pro-cyclically. There is substantial cross-sectional variation in these dynamics. Firms with less leverage and higher debt concentration further de- crease leverage and increase debt concentration in recessions. The opposite is true for firms with higher leverage and lower debt concentration. The latter (former) group consists of firms that are larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cash levels. While the fraction of total assets funded by bank debt increases in the recession by approx- imately 18% of its average non-recession level, the equivalent measure for market debt drops by approximately 7%. Bank debt, in particular, term loans, appears to become more attractive during recession quarters, especially for borrowers characterized by high profitability while firm size, in contrast, has a positive effect on the use of market debt in recessions. A cluster analysis shows that a substantial fraction of frms changes its debt policy over the business cycle. For example, 12% of the firms that exclusively use bond-financing pre-recession switch to bank-financing during recessions.

Suggested Citation

  • Zechner, Josef & Halling, Michael & Yu, Jin, 2020. "The Dynamics of Corporate Debt Structure," CEPR Discussion Papers 14572, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14572
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    References listed on IDEAS

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    Cited by:

    1. Diamond, Douglas W. & Hu, Yunzhi & Rajan, Raghuram G., 2022. "Liquidity, pledgeability, and the nature of lending," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1275-1294.
    2. Darmouni, Olivier & Papoutsi, Melina, 2022. "The rise of bond financing in Europe: five facts about new and small issuers," Working Paper Series 2663, European Central Bank.

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    More about this item

    Keywords

    Corporate debt structure dynamics; Debt concentration; Business cycle variation; Clus- ter analysis;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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