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The Effects Of The 2008-2009 Financial Crisis On U.S. Corporate Debt Structure

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  • Amanda E. Willsey
  • Dona Siregar
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    Abstract

    This paper evaluates the relationships of liquidity, firm size, price change, asset maturity and leverage relative to debt maturity for a sample of U.S. non-financial firms. Secondarily, the objective of the research is to identify any measurable changes in firms' behavior during the 2008-2009 financial crisis with respect to their choice of debt maturity. During the period from 2002 through 2009, data from the sampled firms show significant correlations between liquidity, firm size, asset maturity, and leverage and debt maturity. That is, firms appear to consider liquidity risk when determining the maturity of liabilities. Firms also appear to make an effort to signal their value to the market as a way to reduce mispricing of securities due to information asymmetry. This research therefore provides additional support for the liquidity risk hypothesis, as well as the signaling hypothesis. During the crisis itself, changes in the variables tested did not cause firms to make notable modifications in their behavior, with two exceptions. Firms with increased leverage ratios tend to have longer debt maturity, and this association is even more significant during the crisis. In addition, firms with reduced asset maturity turned to longer-term debt. The recent financial crisis did not appear to significantly affect the other determinants of corporate debt structure. Leverage and asset maturity, however, had a greater impact on firms' decisions during the financial crisis, suggesting that changes in the economic environment affect these determinants individually, but not broadly.

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    Bibliographic Info

    Article provided by New York State Economics Association (NYSEA) in its journal New York Economic Review.

    Volume (Year): 43 (2012)
    Issue (Month): 1 ()
    Pages: 16-32

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    Handle: RePEc:nye:nyervw:v:43:y:2012:i:1:p:16-32

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    1. Guedes, Jose & Opler, Tim, 1996. " The Determinants of the Maturity of Corporate Debt Issues," Journal of Finance, American Finance Association, vol. 51(5), pages 1809-33, December.
    2. Murillo Campello & John Graham & Campbell R. Harvey, 2009. "The Real Effects of Financial Constraints: Evidence from a Financial Crisis," NBER Working Papers 15552, National Bureau of Economic Research, Inc.
    3. Ivashina, Victoria & Scharfstein, David, 2010. "Bank lending during the financial crisis of 2008," Journal of Financial Economics, Elsevier, vol. 97(3), pages 319-338, September.
    4. Brick, Ivan E & Ravid, S Abraham, 1985. " On the Relevance of Debt Maturity Structure," Journal of Finance, American Finance Association, vol. 40(5), pages 1423-37, December.
    5. Wu, Chunchi & Ho, Shih-Jen Kathy, 1997. " Financial Ratio Adjustment: Industry-Wide Effects or Strategic Management," Review of Quantitative Finance and Accounting, Springer, vol. 9(1), pages 71-88, July.
    6. Carlos A. Molina, 2005. "Are Firms Underleveraged? An Examination of the Effect of Leverage on Default Probabilities," Journal of Finance, American Finance Association, vol. 60(3), pages 1427-1459, 06.
    7. Flannery, Mark J, 1986. " Asymmetric Information and Risky Debt Maturity Choice," Journal of Finance, American Finance Association, vol. 41(1), pages 19-37, March.
    8. Deesomsak, Rataporn & Paudyal, Krishna & Pescetto, Gioia, 2009. "Debt maturity structure and the 1997 Asian financial crisis," Journal of Multinational Financial Management, Elsevier, vol. 19(1), pages 26-42, February.
    9. Antonios Antoniou & Yilmaz Guney & Krishna Paudyal, 2006. "The Determinants of Debt Maturity Structure: Evidence from France, Germany and the UK," European Financial Management, European Financial Management Association, vol. 12(2), pages 161-194.
    10. Arvind Krishnamurthy, 2010. "How Debt Markets Have Malfunctioned in the Crisis," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 3-28, Winter.
    11. Shane A. Johnson, 2003. "Debt Maturity and the Effects of Growth Opportunities and Liquidity Risk on Leverage," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 209-236.
    12. Diamond, Douglas W, 1991. "Debt Maturity Structure and Liquidity Risk," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 709-37, August.
    13. Barclay, Michael J & Smith, Clifford W, Jr, 1995. " The Maturity Structure of Corporate Debt," Journal of Finance, American Finance Association, vol. 50(2), pages 609-31, June.
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