Quotation Choi, Jaewon, Hackbarth, Dirk, Zechner, Josef. 2011. Granularity of Corporate Debt: Theory and Tests. Finance Seminar, Lisbon, Portugal, 09.12.


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Abstract

This paper studies the granularity of corporate debt - the degree to which firms spread out their bonds' maturity dates across time. In the model, a firm's access to the bond market may freeze temporarily, either because of general market freezes or because the firm may become temporarily vulnerable to large risks. In such a setting, it can be advantageous to diversify the debt roll-over problem across maturity dates. Using a large sample of corporate bond issuers during the 1991-2009 period, we find evidence that supports our theory's predictions in cross-sectional tests and in time-series tests. In the cross-section, corporate debt structure is more granular and adjusts faster over time for larger and more mature firms, for firms with better investment opportunities, for firms with more tangible assets, for firms with higher leverage ratios, for firms with lower values of assets in place, and for firms with lower levels of current cash flows. In the time-series, we also document that firms actively engage in granularity management in the sense that newly issued bond maturities are inversely related to pre-existing bond maturity profiles.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Unpublished lecture
Language English
Title Granularity of Corporate Debt: Theory and Tests
Event Finance Seminar
Location Lisbon, Portugal
Date Dec. 9, 2011

Associations

People
Zechner, Josef (Details)
External
Choi, Jaewon (University of Illinois at Urbana-Champaign, United States/USA)
Hackbarth, Dirk (University of Illinois at Urbana-Champaign, United States/USA)
Organization
Institute for Finance, Banking and Insurance IN (Details)
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