The Dynamics of Corporate Debt Structure

50 Pages Posted: 2 Dec 2019 Last revised: 21 Feb 2020

See all articles by Michael Halling

Michael Halling

Stockholm School of Economics & Swedish House of Finance

Jin Yu

Monash University -Department of Banking and Finance

Josef Zechner

Vienna University of Economics and Business

Date Written: December 20, 2019

Abstract

We find that US public firms spread out their debt more across different sources in recession quarters, making measures of debt concentration move pro-cyclically. There is substantial cross-sectional variation in these dynamics. Firms with less leverage and higher debt concentration further decrease leverage and increase debt concentration in recessions. The opposite is true for firms with higher leverage and lower debt concentration. The latter (former) group consists of firms that are larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cash levels. While the fraction of total assets funded by bank debt increases in the recession by approximately 18% of its average non-recession level, the equivalent measure for market debt drops by approximately 7%. Bank debt, in particular, term loans, appears to become more attractive during recession quarters, especially for borrowers characterized by high profitability while firm size, in contrast, has a positive effect on the use of market debt in recessions. A cluster analysis shows that a substantial fraction of firms changes its debt policy over the business cycle. For example, 12% of the firms that exclusively use bond-financing pre-recession switch to bank-financing during recessions.

Keywords: corporate debt structure dynamics, debt concentration, business cycle variation, cluster analysis

JEL Classification: G01, G32

Suggested Citation

Halling, Michael and Yu, Jin and Zechner, Josef, The Dynamics of Corporate Debt Structure (December 20, 2019). Swedish House of Finance Research Paper No. 20-3. Available at SSRN: https://ssrn.com/abstract=3488471 or http://dx.doi.org/10.2139/ssrn.3488471

Michael Halling (Contact Author)

Stockholm School of Economics & Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Jin Yu

Monash University -Department of Banking and Finance ( email )

Melbourne
Australia
+61 3 99034590 (Phone)

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

Josef Zechner

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien A-1019
Austria

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