The Dynamics of Corporate Debt Structure
61 Pages Posted: 2 Dec 2019 Last revised: 29 Jul 2021
Date Written: July 29, 2021
This paper shows that the average U.S. listed firm spreads out its debt across a larger number of sources and relies more on bank debt in recession periods. Large cross-sectional differences imply that firms' funding strategies diverge sharply during recessions: less levered firms decrease leverage further by concentrating their borrowing in very few debt types; more levered firms increase their leverage and diversify their debt structure, especially by increasing bank debt. A theoretical model of firms' investment and debt structure choices, where private debt is more expensive but offers flexibility to restructure, is able to rationalize these dynamics.
Keywords: corporate debt structure dynamics, debt concentration, business cycle variation, cluster analysis
JEL Classification: G01, G32
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