Granularity of Corporate Debt

46 Pages Posted: 20 Oct 2017 Last revised: 25 Oct 2017

See all articles by Jaewon Choi

Jaewon Choi

University of Illinois at Urbana-Champaign - Department of Finance

Dirk Hackbarth

Boston University - Department of Finance & Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Josef Zechner

Vienna University of Economics and Business

Date Written: October 24, 2017

Abstract

We study whether firms spread out debt maturity dates, which we call "granularity of corporate debt.'' In our model, firms that are unable to roll over expiring debt need to liquidate assets. If multiple small asset sales are less inefficient than a single large one, it can be optimal to diversify debt rollovers across time. Using a large sample of corporate bond issuers during the 1991-2012 period, we establish novel stylized facts and evidence consistent with our model's predictions. There is substantial heterogeneity, i.e., firms have both concentrated and dispersed debt structures. Debt maturities are more dispersed for larger and more mature firms, for firms with better investment opportunities, with higher leverage, and with lower profitability. During the recent financial crisis firms with valuable investment opportunities implemented more dispersed maturity structures. Finally, firms manage granularity actively and adjust toward target levels.

Keywords: Capital Structure, Debt Structure, Debt Maturity

JEL Classification: G13, G31, G32, G33

Suggested Citation

Choi, Jaewon and Hackbarth, Dirk and Zechner, Josef, Granularity of Corporate Debt (October 24, 2017). Available at SSRN: https://ssrn.com/abstract=3055884 or http://dx.doi.org/10.2139/ssrn.3055884

Jaewon Choi

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Dirk Hackbarth (Contact Author)

Boston University - Department of Finance & Economics ( email )

Department of Finance
595 Commonwealth Avenue
Boston, MA 02215
United States
(617) 358-4206 (Phone)
(617) 353-6667 (Fax)

HOME PAGE: http://people.bu.edu/dhackbar/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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