45 Pages Posted: 17 Mar 2013 Last revised: 14 Dec 2016
Date Written: December 13, 2016
We examine debt dynamics of high-frequency public industrial debt issuers, who raised the bulk of all US public and private corporate debts over the past three decades. Contrary to dynamic tradeoff theory, the cross-sectional leverage-profitability correlation is non-positive at recapitalization points. Moreover, the speed-of-adjustment to target leverage deviations is no higher than for low-frequency debt issuers. Accounting for investment finance, high-frequency issuers finance large investment shocks with new debt - even when overleveraged - and delever in periods with low investment financing needs. We interpret this deleveraging as maintenance of future debt-issue capacity.
Keywords: Capital structure, external finance, debt issues, equity issues, issue costs, leverage, cash-flow identity
JEL Classification: G32
Suggested Citation: Suggested Citation
Eckbo, B. Espen and Kisser, Michael, Leverage Dynamics of High-Frequency Debt Issuers (December 13, 2016). Tuck School of Business Working Paper No. 2234435. Available at SSRN: https://ssrn.com/abstract=2234435 or http://dx.doi.org/10.2139/ssrn.2234435