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How Does Access to the Unsecured Debt Market Affect Investment?

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  • Biguri, Kizkitza

Abstract

I analyze the relevance of debt composition (secured versus unsecured) for the association between collateral and investment. I study a negative shock to the cost and availability of unsecured debt. A decrease in the share of unsecured debt leads to a reduction in investment. The substitution toward secured debt results in asset encumbrance, higher interest rates, and the presence of covenants. The minimization of financing costs is one mechanism through which the priority composition of debt impacts investment. The results complement evidence on the collateral channel with a novel focus on debt structure.

Suggested Citation

  • Biguri, Kizkitza, 2023. "How Does Access to the Unsecured Debt Market Affect Investment?," Journal of Banking & Finance, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:jbfina:v:152:y:2023:i:c:s0378426623000808
    DOI: 10.1016/j.jbankfin.2023.106856
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    More about this item

    Keywords

    Unsecured debt; Debt structure; Financial constraints; Investment; Collateral; Creditor conflict;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G1 - Financial Economics - - General Financial Markets
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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