The Dynamics of Corporate Debt Structure
70 Pages Posted: 2 Dec 2019 Last revised: 31 May 2022
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The Dynamics of Corporate Debt Structure
The Dynamics of Corporate Debt Structure
Date Written: May 28, 2022
Abstract
This paper shows that the average U.S. listed firm increases leverage and implements a more diversified debt structure during recessions by increasing the share of private debt. In the cross-section, borrowing strategies diverge: approximately 40% of firms decrease leverage and increase debt concentration by reducing the proportion of public debt, while the remaining 60% increase leverage and decrease debt concentration by augmenting public debt with private debt. Characteristics of these two samples of firms differ sharply. A model of corporate investment and financing choices, where private debt is more expensive but offers flexibility to restructure, can rationalize these dynamics.
Keywords: corporate debt structure dynamics, debt concentration, business cycle variation, cluster analysis
JEL Classification: G01, G32
Suggested Citation: Suggested Citation