Working Paper: CEPR ID: DP14572
Authors: Josef Zechner; Michael Halling; Jin Yu
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-sectionalvariation 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 withhigher leverage and lower debt concentration. The latter (former) group consists of firms thatare larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cashlevels. 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 byapproximately 7%. Bank debt, in particular, term loans, appears to become more attractive duringrecession quarters, especially for borrowers characterized by high profitability while firm size, incontrast, has a positive effect on the use of market debt in recessions. A cluster analysis showsthat 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 duringrecessions.
Keywords: corporate debt structure; dynamics; debt concentration; business cycle variation; cluster analysis
JEL Codes: G01; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Recession (E32) | Debt Concentration (F34) |
| Lower Leverage during Recession (F65) | Decrease in Leverage (G32) |
| Lower Leverage during Recession (F65) | Increase in Debt Concentration (F65) |
| Higher Leverage during Recession (F65) | Decrease in Debt Concentration (G32) |
| Recession (E32) | Fraction of Assets Funded by Bank Debt (G32) |
| Recession (E32) | Fraction of Assets Funded by Market Debt (G32) |
| Firm Size (L25) | Reliance on Market Debt (G32) |
| Cash Levels (G19) | Countercyclical Concentration Dynamics (E32) |
| Growth Options (D25) | Countercyclical Concentration Dynamics (E32) |