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Determinants of the Floating-to-Fixed Rate Debt Structure of Firms

Sudheer Chava
Texas A&M University

Amiyatosh K. Purnanandam
University of Michigan - Stephen M. Ross School of Business

February 28, 2006

EFA 2006 Zurich Meetings

Abstract:
We analyze the effects of managerial incentive, monitoring, firm characteristics and market-timing on floating-to-fixed rate debt structure of firms. We find that the CFO's (not CEO's) incentive has a strong influence on a firm's debt structure. When CFOs have incentives to increase (decrease) firm-risk, firms obtain volatility-increasing (decreasing) debt structure. Internal monitoring by the CEO and independent board members as well as external monitoring through corporate control market weakens the link between CFO's incentive and debt structure. Our findings suggest that agency problems at the level of non-CEO executives may be an important driver of various corporate decisions.

Keywords: Hedging, floating rate debt, corporate governance, executive compensation

JEL Classifications: G3

Working Paper Series

Date posted: February 28, 2005 ; Last revised: August 08, 2006

Suggested Citation

Chava, Sudheer and Purnanandam, Amiyatosh K., Determinants of the Floating-to-Fixed Rate Debt Structure of Firms (February 28, 2006). EFA 2006 Zurich Meetings. Available at SSRN: http://ssrn.com/abstract=609621

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Contact Information

Amiyatosh K. Purnanandam (Contact Author) University of Michigan - Stephen M. Ross School of Business ( email ) 701 Tappan Street Ann Arbor, MI 48109 United States
Sudheer Chava Texas A&M University ( email ) College Station, TX 77843-4218 United States HOME PAGE: http://wehner.tamu.edu/finc.www/schava