The Dynamics of Corporate Debt Structure

Josef Zechner, Michael Halling and Jin Yu

No 14572, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We find that US public firms spread out their debt more across different sources in recession quar- ters, 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 de- crease 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 approx- imately 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 frms 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; Clus- ter analysis (search for similar items in EconPapers)
JEL-codes: G01 G32 (search for similar items in EconPapers)
Date: 2020-04
New Economics Papers: this item is included in nep-bec, nep-cfn, nep-mac and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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