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Granularity of Corporate Debt

Part of:JFQA William F. Sharpe Best Paper Award Winner

Published online by Cambridge University Press:  02 September 2020

Jaewon Choi,
Dirk Hackbarth and
Josef ZechnerOpen the ORCID record for Josef Zechner[Opens in a new window]
Jaewon Choi*
Affiliation:
University of Illinois Urbana-Champaign and Yonsei University jaewchoi@illinois.edu
Dirk Hackbarth
Affiliation:
Boston University Questrom School of Business, CEPR, and ECGI dhackbar@bu.edu
Josef Zechner
Affiliation:
Vienna University of Economics and Business josef.zechner@wu.ac.at
*
jaewchoi@illinois.edu (corresponding author)
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Abstract

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We study whether firms spread out debt-maturity dates, which we call granularity of corporate debt. In our model, firms that are unable to roll over expiring debt need to liquidate assets. If multiple small asset sales are less inefficient than a single large one, it can be optimal to diversify debt rollovers across time. Using a large sample of corporate bond issuers during the 1991–2012 period, we establish novel stylized facts and evidence consistent with our model’s predictions. There is substantial heterogeneity (i.e., firms have both concentrated and dispersed debt structures). Debt maturities are more dispersed for larger and more mature firms and for firms with better investment opportunities, higher leverage, and lower profitability. During the recent financial crisis, firms with valuable investment opportunities implemented more dispersed maturity structures. Finally, firms manage granularity actively and adjust toward target levels.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 4 , June 2021, pp. 1127 - 1162
Copyright
© THE AUTHOR(S), 2020. PUBLISHED BY CAMBRIDGE UNIVERSITY PRESS ON BEHALF OF THE MICHAEL G. FOSTER SCHOOL OF BUSINESS, UNIVERSITY OF WASHINGTON

Footnotes

We are grateful to Viral Acharya, Heitor Almeida, Ran Duchin, Chuan Yang Hwang, Evgeny Lyandres, Ernst Maug, Sheriden Titman, and John Wald and seminar participants at the Catolica Lisbon joint seminar with Nova and Instituto Universitário de Lisboa (ISCTE-IUL), Copenhagen Business School, Ecole des Hautes Etudes Commerciales du Nord (EDHEC) Nice, European School of Management and Technology (ESMT) Berlin, Erasmus University Rotterdam, Hebrew University, Interdisciplinary Center (IDC) Herzliya, Maastricht University, Tel Aviv University, the University of California at San Diego, the University of Geneva, the University of Hong Kong, the University of Illinois, the University of Iowa, the University of Mannheim, the University of Oxford, the University of Pennsylvania, the University of St. Gallen, the University of Tilburg, the University of Washington, Vienna University of Economics and Business, WHU-Otto Beisheim School of Management, the 2012 China International Conference, the 2012 European Finance Association (EFA) Meetings, and the 2012 Liquidity Risk Management Conference for helpful comments and suggestions.

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