What Determines the Structure of Corporate Debt Issues?

44 Pages Posted: 21 Dec 2007 Last revised: 27 Sep 2010

See all articles by Brandon Julio

Brandon Julio

Lundquist College of Business, University of Oregon

Woojin Kim

Seoul National University - Business School

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: July 15, 2008

Abstract

Publicly-traded debt securities differ on a number of dimensions, including quality, maturity, seniority, security, and convertibility. Finance research has provided a number of theories as to why firms should issue debt with different features; yet, there is very little empirical work testing these theories. We consider a sample of 14,867 debt issues in the U.S. between 1971 and 2004. Our goal is to test the implications of these theories, and, more generally, to establish a set of stylized facts regarding the circumstances under which firms issue different types of debt.

Our results suggest that there are three main types of factors that affect the structure of debt issues: First, firm-specific factors such as leverage, growth opportunities and cash holdings are related with the convertibility, maturity and security structure of issued bonds. Second, economy-wide factors, in particular the state of the macroeconomy, affect the quality distribution of securities offered; in particular, during recessions, firms issue fewer poor quality bonds than in good times but similar numbers of high-quality bonds. Finally, controlling for firm characteristics and economy-wide factors, project specific factors appear to influence the types of securities that are issued. Consistent with commonly stated 'maturity-matching' arguments, long-term, nonconvertible bonds are more likely to be issued by firms investing in fixed assets, while convertible and short-term bonds are more likely to finance investment in R&D.

Keywords: convertible bond, callable bond, bond rating, bond maturity

JEL Classification: G32, G31

Suggested Citation

Julio, Brandon and Kim, Woojin and Weisbach, Michael S., What Determines the Structure of Corporate Debt Issues? (July 15, 2008). Fisher College of Business Working Paper No. 2008-03-010; Dice Center WP 2008-11. Available at SSRN: https://ssrn.com/abstract=1076947 or http://dx.doi.org/10.2139/ssrn.1076947

Brandon Julio

Lundquist College of Business, University of Oregon ( email )

1280 University of Oregon
Eugene, OR 97403
United States

Woojin Kim

Seoul National University - Business School ( email )

1 Gwanak-ro, Gwanak-gu
Seoul, 08826
Korea, Republic of (South Korea)
82-2-880-5831 (Phone)

HOME PAGE: http://cba.snu.ac.kr/en/faculty?mode=view&memberidx=60582&major=6

Michael S. Weisbach (Contact Author)

Ohio State University (OSU) - Department of Finance ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

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