The Effects of Financing Frictions in Investment-Grade Debt Markets

50 Pages Posted: 13 Nov 2017 Last revised: 3 Apr 2019

Date Written: April 1, 2019

Abstract

Using micro-level data on investor-underwriter-issuer relationships, we uncover significant supply-side frictions in the U.S. corporate public debt markets. Even firms issuing investment-grade debt, except for AAA-rated issues, face credit supply frictions. Separating supply-side preferences from those of the firm, we show that firm debt maturity is as sensitive to the financier’s preferences as to a firm’s own debt maturity structure. Preference mismatch between firms and their financiers regarding debt maturity reduces debt issuance amounts. Recently, exogenous factors such as prolonged low interest rates have increased this firm-financier maturity preference mismatch, resulting in less corporate debt and slower firm asset growth.

Keywords: Debt maturity, Insurance companies, Underwriters, Maturity mismatch

JEL Classification: G24, G32

Suggested Citation

Chakraborty, Indraneel and MacKinlay, Andrew, The Effects of Financing Frictions in Investment-Grade Debt Markets (April 1, 2019). University of Miami Business School Research Paper No. 18-11. Available at SSRN: https://ssrn.com/abstract=3069076 or http://dx.doi.org/10.2139/ssrn.3069076

Indraneel Chakraborty (Contact Author)

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)

HOME PAGE: http://sites.google.com/site/chakraborty/

Andrew MacKinlay

Virginia Tech ( email )

1016 Pamplin Hall (0221)
880 West Campus Drive
Blacksburg, VA 24060-0221
United States

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