Corporate Structure Complexity and Cost of Debt

Hong-Hanh Thi Huynh and Hoang-Long Phan
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Hong-Hanh Thi Huynh: The University of Danang, School of Economics, Danang, Vietnam
Hoang-Long Phan: The University of Danang, School of Economics, Danang, Vietnam

Czech Journal of Economics and Finance (Finance a uver), 2023, vol. 73, issue 4, 375-391

Abstract: This paper investigates how a firm’s cost of debt is related to the complexity of its corporate structure. Our hand-collected data sample covers 3271 loan-year observations of 815 publicly listed US firms for the period between 2012 and 2017. The results show a positive and significant relationship between corporate structure complexity and cost of debt. More complex firms are also found to have lower debt ratings and more financial covenants enclosed in their loan contracts. These findings suggest that greater corporate structure complexity is associated with increased credit risk. Instrumental variable analysis and a number of additional tests further confirm our results. Our results also hold for corporate bonds.

Keywords: corporate structure; cost of debt; complexity (search for similar items in EconPapers)
JEL-codes: G39 L22 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:73:y:2023:i:4:p:375-391

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