Granularity of Corporate Debt

Granularity of Corporate Debt
Author: Jaewon Choi
Publisher:
Total Pages: 46
Release: 2017
Genre:
ISBN:

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, for firms with better investment opportunities, with higher leverage, and with 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.

Granularity of Corporate Debt

Granularity of Corporate Debt
Author: Jaewon Choi
Publisher:
Total Pages:
Release: 2013
Genre:
ISBN:

We study to what extent firms spread out their debt maturity dates across time, which we call "granularity of corporate debt." We consider the role of debt granularity using a simple model in which a firm's inability to roll over expiring debt causes inefficiencies, such as costly asset sales or underinvestment. Since multiple small asset sales are less costly than a single large one, firms may diversify debt rollovers across maturity dates. We construct granularity measures using data on corporate bond issuers for the 1991-2011 period and establish a number of novel findings. First, there is substantial variation in granularity in that many firms have either very concentrated or highly dispersed maturity structures. Second, our model's predictions are consistent with observed variation in granularity. Corporate debt maturities are more dispersed for larger and more mature firms, for firms with better investment opportunities, with higher leverage ratios, and with lower levels of current cash flows. We also show that during the recent financial crisis especially firms with valuable investment opportunities implemented more dispersed maturity structures. Finally, granularity plays an important role for bond issuances, because we document that newly issued corporate bond maturities complement pre-existing bond maturity profiles.

The Impact of Macroeconomic Variables on the Debt Issuing Behaviour of Corporates

The Impact of Macroeconomic Variables on the Debt Issuing Behaviour of Corporates
Author:
Publisher:
Total Pages:
Release: 2015
Genre:
ISBN:

I study the impact of macroeconomic conditions on the dispersion of corporate debt maturities ("granularity of corporate debt") from April 2004 to June 2014 for the S&P 500 firms. I compute measures of granularity based on data from Thomson Reuters. As modeled in the prior literature, firms are expected to manage the granularity of their debt due to the rollover risk that varies with the market conditions. The novelty and contribution of this thesis consist in the following empirical findings. First, the granularity of corporate debt is reliably associated with a set of macroeconomic variables. However, the results suggest that the pricing considerations may play a large part in determining the maturity composition along with the rollover risk. Second, I notice that the firms that did not issue bonds during the financial crisis of 2007-2009 differ from those that did. Moreover, for the former, contemporaneous interest rates seem to be the most important factor influencing the granularity of corporate debt, while for the latter, the credit spreads and the performance of the stock market have high explanatory power.

The Effects of Corporate Bond Granularity

The Effects of Corporate Bond Granularity
Author: Lars Norden
Publisher:
Total Pages: 10
Release: 2015
Genre:
ISBN:

We investigate whether and how firms manage their rollover risk by having a dispersed bond maturity structure (granularity). Granularity can be achieved or maintained by frequently issuing sets of bonds with different maturities. We find that firms with higher granularity have higher availability of financing, lower cost of financing, lower financial constraints and lower stock return volatility. The effects are stronger for firms that face higher rollover risk. The evidence suggests that spreading out bond maturities is an effective corporate policy to manage rollover risk.

Corporate Debt

Corporate Debt
Author: Carolyn Kay Brancato
Publisher:
Total Pages: 48
Release: 1986
Genre: Corporate debt
ISBN:

Debt Management

Debt Management
Author: John D. Finnerty
Publisher: Oxford University Press
Total Pages: 468
Release: 2001
Genre: Business & Economics
ISBN:

When companies need fuel to grow, bonds may be the way to go. Traditional blue-chip firms and dot-com startups alike can use debt strategically as a key financial instrument. The critical challenge, however, is integrating corporate debt into core business strategies and established financial policies. This practical book provides practitioners in every industry with a comprehensive, prudent approach to managing corporate debt obligations. Written by leading experts in the field and drawing from case studies of real companies, Debt Management walks financial professionals through the entire decision-making process--from designing debt issues to retiring debt through bond redemptions and bond repurchases, all to meet corporate financial objectives. Unique in its presentation of the issuer's perspective--that is, it looks at debt from the company's viewpoint, and not just the buyer's or underwriter's--this work will be the industry reference on debt management and the corporate financier's desktop consultant for years to come. With insights into how factors such as bond valuation methodologies, derivatives, and tax and regulatory restrictions affect the process, the authors provide practitioners in both the U.S. and international debt markets with the information and tools needed to make smart debt-management decisions. With first-rate thinking in finance, while keeping the complex mathematics to a minimum, this volume will prove as handy as it is indispensable--the essential reference for planning, implementing, and managing corporate debt with discretion and confidence.