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Granularity of Corporate Debt

Jaewon Choi

University of Illinois at Urbana-Champaign - Department of Finance

Dirk Hackbarth

Boston University School of Management

Josef Zechner

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

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Date posted: November 30, 2011 ; Last revised: March 15, 2014

Suggested Citation

Choi, Jaewon and Hackbarth, Dirk and Zechner, Josef, Granularity of Corporate Debt (March 10, 2014). Available at SSRN: http://ssrn.com/abstract=1966613 or http://dx.doi.org/10.2139/ssrn.1966613

Contact Information

Jaewon Choi
University of Illinois at Urbana-Champaign - Department of Finance ( email )
1206 South Sixth Street
Champaign, IL 61820
United States
Dirk Hackbarth (Contact Author)
Boston University School of Management ( email )
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)
HOME PAGE: http://people.bu.edu/dhackbar/
Josef Zechner
Vienna University of Economics and Business ( email )
Heiligenstaedter Strasse 46
Vienna, Wien A-1019
Feedback to SSRN

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References:  43
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