Debt Management of Non-Financial Corporations

Abstract

Debt management is of high importance for financial professionals and is a complex managerial decision, since the uncertainty of business cashflows may undermine the availability of financing, stress business operations and diminish future growth prospects. Whilst the management of corporate debt has sparked much interest and been widely discussed in the academic literature, none of the existing theories address this problem comprehensively. This thesis considers debt management decisions in non- financial corporations; it tests empirically various existing theories, establishes several stylised facts regarding funding decisions and contributes to the current research by exploring the influence of industry specific factors, financial intermediates and market conditions on debt management. Using U.S. data at the company level, the first study explores the variation of debt maturity across industry. Also, using both European bond and loan aggregate data, the second and third studies are the first ones, which highlight the impact of financial intermediates on both debt issuance and debt maturity timing strategies. The present work therefore offers both a cross-sectional overview of debt management and an analysis of its dynamics over time. The results indicate that (i) in addition to firm's characteristics, the cross-sectional variation of debt maturity can be explained by industry specific factors, which are not captured in the existing literature, (ii) that the agency cost hypothesis appears to be irrelevant for large cap firms, therefore giving more weight to the maturity-matching principle and the signaling hypothesis in explaining debt maturity structure, (iii) that managers tend to time their credit borrowing spread when they issue bonds and switch to the loan market during high interest rate periods, therefore contradicting earlier claims that interest rate timing explains time-series variations of debt issuance and (iv) that while corporates debt maturity mirror government debt maturity when directly placed debt is considered, financial intermediates act as a barrier to corporate debt maturity timing strategy.