Granularity of Corporate Debt
University of Illinois at Urbana-Champaign - Department of Finance
Boston University School of Management
Vienna University of Economics and Business
March 10, 2014
We study the dispersion of debt maturities across time, which we call "granularity of corporate debt,'' using a model in which a firm's inability to roll over expiring debt causes inefficiencies, such as costly asset sales or underinvestment. Since multiple small asset sales are less costly than a single large one, firms diversify debt rollovers across maturity dates. We construct granularity measures using data on corporate bond issuers for the 1991-2012 period and establish a number of novel findings. First, there is substantial variation in granularity in that we observe both very concentrated and highly dispersed maturity structures. Second, observed variation in granularity supports the model's predictions, i.e. maturities are more dispersed for larger and more mature firms, for firms with better investment opportunities, with higher leverage ratios, and with lower levels of current cash flows. Third, firms manage granularity actively and adjust toward target levels. Finally, newly issued bond maturities complement pre-existing bond maturity profiles.
Number of Pages in PDF File: 52
Keywords: Capital Structure, Debt Structure, Debt Maturity
JEL Classification: G13, G31, G32, G33
Date posted: November 30, 2011 ; Last revised: March 15, 2014
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