Debt Specialization
56 Pages Posted: 11 Dec 2009 Last revised: 28 Mar 2012
Date Written: March 26, 2012
Abstract
This paper examines debt structure using a new and comprehensive database on types of debt employed by publicly listed U.S. firms. We find that specialization in a single debt type is a widespread phenomenon, and that the degree of specialization varies widely across different subsamples — large rated firms tend to diversify across multiple debt types, while small unrated firms specialize in fewer types. We examine possible explanations for this phenomenon and show that specialization is driven by its economic benefits in the forms of lower bankruptcy costs, economies in information collection costs, and enhanced incentives to monitor. We then examine the role of credit constraints as captured by firms’ not having a credit rating, and show that debt specialization is also driven by constrained access to public debt markets.
Keywords: debt specialization, debt structure, commercial paper, drawn credit lines, term loans, senior bonds and notes, subordinated bonds and notes, capital leases
JEL Classification: G32
Suggested Citation: Suggested Citation
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