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Leverage Dynamics of High-Frequency Debt Issuers

45 Pages Posted: 17 Mar 2013 Last revised: 14 Dec 2016

B. Espen Eckbo

Tuck School of Business at Dartmouth; European Corporate Governance Institute (ECGI)

Michael Kisser

Norwegian School of Economics (NHH)

Date Written: December 13, 2016

Abstract

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

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

B. Espen Eckbo (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603-646-3953 (Phone)
603-646-3805 (Fax)

HOME PAGE: http://www.tuck.dartmouth.edu/eckbo

European Corporate Governance Institute (ECGI)

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

Michael Kisser

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

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