What Determines the Structure of Corporate Debt Issues?
NBER Working Paper No. 13706
Issued in December 2007
NBER Program(s): CF
Publicly-traded debt securities differ on a number of dimensions, including quality, maturity, seniority, security, and convertibility. Finance research has provided a number of theories as to why firms should issue debt with different features; yet, there is very little empirical work testing these theories. We consider a sample of 14,867 debt issues in the U.S. between 1971 and 2004. Our goal is to test the implications of these theories, and, more generally, to establish a set of stylized facts regarding the circumstances under which firms issue different types of debt.
Our results suggest that there are three main types of factors that affect the structure of debt issues: First, firm-specific factors such as leverage, growth opportunities and cash holdings are related with the convertibility, maturity and security structure of issued bonds. Second, economy-wide factors, in particular the state of the macroeconomy, affect the quality distribution of securities offered; in particular, during recessions, firms issue fewer poor quality bonds than in good times but similar numbers of high-quality bonds. Finally, controlling for firm characteristics and economy-wide factors, project specific factors appear to influence the types of securities that are issued. Consistent with commonly stated 'maturity-matching' arguments, long-term, nonconvertible bonds are more likely to be issued by firms investing in fixed assets, while convertible and short-term bonds are more likely to finance investment in R&D.
This paper is available as PDF (314 K) or via email.
Machine-readable bibliographic record -
Users who downloaded this paper also downloaded these:
|Rauh and Sufi
||w14488 Capital Structure and Debt Structure
|Fan, Titman, and Twite
||w16445 An International Comparison of Capital Structure and Debt Maturity Choices
|Gozzi, Levine, Martinez Peria, and Schmukler
||w17763 How Firms Use Domestic and International Corporate Bond Markets
|Almeida, Campello, Laranjeira, and Weisbenner
||w14990 Corporate Debt Maturity and the Real Effects of the 2007 Credit Crisis
|Erel, Julio, Kim, and Weisbach
||w16941 Macroeconomic Conditions and Capital Raising