Long-Term Debt

John B. Guerard, Anureet Saxena () and Mustafa N. Gültekin
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John B. Guerard: McKinley Capital Management, LLC
Anureet Saxena: McKinley Capital Mgmt, LLC
Mustafa N. Gültekin: University of North Carolina Chapel Hill

Chapter Chapter 9 in Quantitative Corporate Finance, 2022, pp 181-214 from Springer

Abstract: Abstract Long-term debt is the term given to those obligations the firm does not have to pay for at least a year. They are also called funded debt or fixed liabilities. Items that may be classed as long-term debt are bonds, debentures, term loans, or, in small firms, mortgages on buildings. The portion of the long-term debt due within the current year is carried in the current liability section of the balance sheet. Firms in the United States issue far more debt than equity shares. In most years during the 1963–2003 period, firms have issued six to eight times more debt than equity. (Of course, most increase in equity is through retained earnings.) Issuing debt raises capital for firm growth and expansion without possibly lessening current stockholder control. The floatation costs are less on debt than on equity, and the cost of debt is less than the expected shareholder return on equity.

Date: 2022
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DOI: 10.1007/978-3-030-87269-4_9

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