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Alan M Taylor - One of the best experts on this subject based on the ideXlab platform.
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zombies at large Corporate Debt overhang and the macroeconomy
Research Papers in Economics, 2020Co-Authors: Oscar Jorda, Martin Kornejew, Moritz Schularick, Alan M TaylorAbstract:With business leverage at record levels, the effects of Corporate Debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of Corporate Debt overhang based on long-run cross-country data covering the near universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy's tail risks either. Yet in line with theory, we find that the economic costs of Corporate Debt booms rise when inefficient Debt restructuring and liquidation impede the resolution of Corporate financial distress and make it more likely that Corporate zombies creep along.
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zombies at large Corporate Debt overhang and the macroeconomy
Social Science Research Network, 2020Co-Authors: Oscar Jorda, Martin Kornejew, Moritz Schularick, Alan M TaylorAbstract:With business leverage at record levels, the effects of Corporate Debt overhang on growth and investment have become a prominent concern. In this paper, we study the effects of Corporate Debt overhang based on long-run cross-country data covering the near- universe of modern business cycles. We show that business credit booms typically do not leave a lasting imprint on the macroeconomy. Quantile local projections indicate that business credit booms do not affect the economy’s tail risks either. Yet in line with theory, we find that the economic costs of Corporate Debt booms rise when inefficient Debt restructuring and liquidation impede the resolution of Corporate financial distress and make it more likely that Corporate zombies creep along. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
Josef Zechner - One of the best experts on this subject based on the ideXlab platform.
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granularity of Corporate Debt
Social Science Research Network, 2017Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract: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.
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Corporate Debt maturity profiles
Research Papers in Economics, 2017Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract:We study a novel aspect of a firm's capital structure, namely the profile of its Debt maturity dates. In a simple theoretical framework we show that the dispersion of Debt maturities constitutes an important dimension of capital structure choice, driven by firm characteristics and Debt rollover risk. Guided by these predictions we establish two main empirical results. First, using an exogenous shock to rollover risk, we document a significant increase in maturity dispersion for firms that need to roll over maturing Debt. Second, we find strong support that maturities of newly issued Debt are influenced by pre-existing maturity profiles.
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Corporate Debt maturity profiles
Social Science Research Network, 2016Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract:We study a new aspect of a company's Debt structure, namely the profile of its maturity dates. Based on dispersion measures of a firm's Debt maturities, we find that these measures vary substantially across firms and time. Using an exogenous shock to rollover risk, we find a significant increase in maturity dispersion for firms which need to roll over expiring bonds. Newly issued bond maturities complement pre-existing bond maturities, so firms spread out maturity dates over time to maintain or increase dispersion of maturity profiles.
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granularity of Corporate Debt
Research Papers in Economics, 2013Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract: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.
Michael S Weisbach - One of the best experts on this subject based on the ideXlab platform.
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how management risk affects Corporate Debt
Review of Financial Studies, 2018Co-Authors: Yihui Pan, Tracy Yue Wang, Michael S WeisbachAbstract:Management risk, which reflects uncertainty about the management's value added, is an important yet unexplored determinant of a firm's default risk and Debt pricing. CDS spreads, loan spreads and bond yield spreads all increase at the time of management turnover, when management risk is highest, and decline over the first three years of CEO and CFO tenure, regardless of the reason for the turnover. These effects all vary with the ex ante uncertainty about the new management. Understanding the effects of management risk on Corporate liabilities has a number of implications for the pricing of liabilities and Corporate financial management.
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how management risk affects Corporate Debt
National Bureau of Economic Research, 2016Co-Authors: Yihui Pan, Tracy Yue Wang, Michael S WeisbachAbstract:Management risk occurs when uncertainty about future managerial decisions increases a firm’s overall risk. This paper argues that management risk is an important yet unexplored determinant of a firm’s default risk and the pricing of its Debt. CDS spreads, loan spreads and bond yield spreads all increase at the time of CEO turnover, when management risk is highest, and decline over the first three years of CEO tenure, regardless of the reason for the turnover. A similar pattern but of smaller magnitude occurs around CFO turnovers. The increase in the CDS spread at the time of the CEO departure announcement, the change in the spread when the incoming CEO takes office, as well as the sensitivity of the spread to the new CEO’s tenure, all depend on the amount of prior uncertainty about the new management.
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how management risk affects Corporate Debt
2016Co-Authors: Yihui Pan, Michael S Weisbach, Tracy Yue WangAbstract:Management risk occurs when uncertainty about future managerial decisions increases a firm’s overall risk. This paper argues that management risk is an important yet unexplored determinant of a firm’s default risk and the pricing of its Debt. CDS spreads, loan spreads and bond yield spreads all increase at the time of CEO turnover, when management risk is highest, and decline over the first three years of CEO tenure, regardless of the reason for the turnover. A similar pattern but of smaller magnitude occurs around CFO turnovers. The increase in the CDS spread at the time of the CEO departure announcement, the change in the spread when the incoming CEO takes office, as well as the sensitivity of the spread to the new CEO’s tenure, all depend on the amount of prior uncertainty about the new management.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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did securitization affect the cost of Corporate Debt
Journal of Financial Economics, 2012Co-Authors: Taylor D Nadauld, Michael S WeisbachAbstract:This paper investigates whether the securitization of Corporate bank loan facilities had an impact on the price of Corporate Debt. Our results suggest that loan facilities that are subsequently securitized are associated with a 17 basis point lower spread than that of facilities that are not subsequently securitized. We consider facility characteristics that are associated with the likelihood of securitization and estimate the extent to which these characteristics are related to spreads. We document that Term Loan B facilities, facilities of B-rated firms, and facilities originated by banks that originate CLOs are securitized more frequently than other facilities. Spreads on facilities estimated to be more likely to be subsequently securitized have lower spreads than otherwise similar facilities. The results are consistent with the view that securitization caused a reduction in the cost of capital.
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did securitization affect the cost of Corporate Debt
Social Science Research Network, 2011Co-Authors: Taylor D Nadauld, Michael S WeisbachAbstract:This paper investigates whether the securitization of Corporate bank loans had an impact on the price of Corporate Debt. Our results suggest that loan facilities that are subsequently securitized are associated with a 15 basis point lower spread than that of loans that are not subsequently securitized. To identify the particular role of securitization in loan pricing, we employ a difference in differences approach and consider loan characteristics that are associated with the likelihood of securitization. We document that Term Loan B facilities, facilities originated by banks that originate CLOs, and loans of B-Rated firms are securitized more frequently than other loans. Spreads on facilities estimated to be more likely to be subsequently securitized have lower spreads than otherwise similar facilities. The results are consistent with the view that securitization caused a reduction in the cost of capital.
Dirk Hackbarth - One of the best experts on this subject based on the ideXlab platform.
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granularity of Corporate Debt
Social Science Research Network, 2017Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract: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.
-
Corporate Debt maturity profiles
Research Papers in Economics, 2017Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract:We study a novel aspect of a firm's capital structure, namely the profile of its Debt maturity dates. In a simple theoretical framework we show that the dispersion of Debt maturities constitutes an important dimension of capital structure choice, driven by firm characteristics and Debt rollover risk. Guided by these predictions we establish two main empirical results. First, using an exogenous shock to rollover risk, we document a significant increase in maturity dispersion for firms that need to roll over maturing Debt. Second, we find strong support that maturities of newly issued Debt are influenced by pre-existing maturity profiles.
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Corporate Debt maturity profiles
Social Science Research Network, 2016Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract:We study a new aspect of a company's Debt structure, namely the profile of its maturity dates. Based on dispersion measures of a firm's Debt maturities, we find that these measures vary substantially across firms and time. Using an exogenous shock to rollover risk, we find a significant increase in maturity dispersion for firms which need to roll over expiring bonds. Newly issued bond maturities complement pre-existing bond maturities, so firms spread out maturity dates over time to maintain or increase dispersion of maturity profiles.
-
granularity of Corporate Debt
Research Papers in Economics, 2013Co-Authors: Jaewon Choi, Dirk Hackbarth, Josef ZechnerAbstract: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.
Garth Novack - One of the best experts on this subject based on the ideXlab platform.
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the effect of taxes on Corporate Debt maturity decisions an analysis of public and private bond offerings
Journal of The American Taxation Association, 1999Co-Authors: Kaye J Newberry, Garth NovackAbstract:This paper tests theoretical predictions of a relation between taxes and Corporate Debt maturity decisions using bond offerings (public and private) during 1988–1995. Consistent with predictions of a tax clientele effect, a positive relation between firms' marginal tax rates and the maturity term of their Corporate bond offerings is found. Also consistent with tax predictions of a term structure effect, the results indicate that firms issue Corporate bonds with longer maturities in periods characterized by large term premiums (for long‐ vs. short‐term interest rates). In periods with large term premiums, long‐term bonds accelerate interest deductions into the early years of the bond obligation (with the present value of pre‐tax interest payments being no more for the long‐term bond than for successive short‐term bond issues). These findings extend prior research on determinants of financing choices by providing some of the first empirical evidence that taxes are related to Corporate Debt maturity decisions.
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the effect of taxes on Corporate Debt maturity decisions an analysis of public and private bond offerings
Social Science Research Network, 1999Co-Authors: Kaye J Newberry, Garth NovackAbstract:This study extends prior research on determinants of financing choices by providing some of the first empirical evidence that taxes are related to managers' Corporate Debt maturity decisions. We test predictions of a relation between taxes and Corporate Debt maturity using data obtained from the Global New Issues Database on bond offerings (public and private) during 1988-1995. Our focus on Corporate bond offerings allows us to conduct strong tests of incremental Debt maturity decisions in a setting where firms' characteristics (such as their tax status, size, financial condition, and existing long-term Debt position) can be measured immediately prior to an offering. In addition, our data allows us to examine both public and private bond offerings so that we can distinguish between variations in maturity term that are related to the type of Debt security issued by a firm versus variations within public or private Debt offerings. One prediction of a relation between taxes and maturity term stems from the tax clientele argument. Scholes and Wolfson posit that transaction costs make it more expensive to issue a sequence of short-term Debt instruments than to issue one long-term Debt obligation, but that not all firms can afford the luxury of issuing long-term Debt. Specifically, they assert that firms with high marginal tax rates form a natural clientele for "cheap" long-term Debt obligations because they can use the ongoing tax shields provided by long-term Debt cost-effectively. Consistent with predictions of a tax clientele effect, we find a positive relation between firms' marginal tax rates and maturity term for our full sample of Corporate bond offerings, as well as for sub-samples of public or private bonds. Our finding is robust to sensitivity tests, and it holds up in supplemental comparisons of short-term bonds to either medium-term or long-term bonds. These latter comparisons across bond classifications are important because they eliminate an alternate credit risk explanation proposed by Guedes and Opler in their 1996 study (i.e., that there is no tax relation per se, but that credit-worthy firms whose tax rates happen to be high are found at the very long end of the maturity spectrum). Our results also are consistent with tax predictions related to a term structure effect, where interest deductions are accelerated into the early years of a Debt obligation when long-term interest rates exceed short-term rates. In our full sample of bond offerings, we find that firms issue Corporate bonds with longer maturities in periods characterized by large term premiums (for long- versus short-term interest rates). That is, we find a term structure effect in periods where long-term bonds provide a significant acceleration of interest deductions into the early years of the bond obligation (with the present value of pre-tax interest payments being no more for the long-term bond than for successive short-term bond issues). Our sensitivity analysis suggests that these term structure effects are driven primarily by public Debt, and that the effects are sufficiently strong to allow empirical detection only in those periods with term premiums of at least 2.5 percentage points.
