Capital Structure and Debt Structure

50 Pages Posted: 17 Nov 2008  

Joshua D. Rauh

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Amir Sufi

University of Chicago - Booth School of Business; NBER

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Date Written: November 2008

Abstract

Using a novel data set that records individual debt issues on the balance sheet of a large random sample of rated public firms, we show that a recognition of debt heterogeneity leads to new insights into the determinants of corporate capital structure. We first demonstrate that traditional capital structure studies that ignore debt heterogeneity miss a substantial fraction of capital structure variation. We then show that relative to high credit quality firms, low credit quality firms are more likely to have a multi-tiered capital structure consisting of both secured bank debt with tight covenants and subordinated non-bank debt with loose covenants. Further, while high credit quality firms enjoy access to a variety of sources of discretionary flexible sources of finance, low credit quality firms rely on tightly monitored secured bank debt for liquidity. We discuss the extent to which these findings are consistent with existing theoretical models of debt structure in which firms simultaneously use multiple debt types to preserve manager and creditor incentives.

Suggested Citation

Rauh, Joshua D. and Sufi, Amir, Capital Structure and Debt Structure (November 2008). NBER Working Paper No. w14488. Available at SSRN: https://ssrn.com/abstract=1301936

Joshua D. Rauh (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Amir Sufi

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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