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Debt dynamic, debt dispersion and corporate governance

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  • Daniel Tut

Abstract

Purpose - This paper addresses the following questions: Why do some firms employ multiple debt types? What explains debt heterogeneity? Is the choice of the source of debt a function of corporate governance? Design/methodology/approach - The author's paper is empirical and uses multiple regression analysis. Findings - Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Contrastingly, firms that are well-managed tend to concentrate debt and borrow predominantly from a few creditors. The author also found that while bank debt is negatively associated with debt concentration, market debt is positively associated with debt concentration. Research limitations/implications - Firms under weak corporate governance have a higher propensity to use multiple debt types and have a dispersed debt structure. Well-managed firms tend to concentrate debt and borrow predominantly from a few creditors. Bank debt is negatively associated with debt concentration and market debt is positively associated with debt concentration. Practical implications - Policymakers and practitioners need to account not only for changes in the firm’s total debt level but also for changes within the firm’s debt composition. Understanding a manager’s choice of debt structure can incentivize creditors to effectively monitor and use debt concentration as a form of commitment device that transfers some control rights from the manager to creditors. Originality/value - While a vast body of corporate finance literature examines the conflict between shareholders and management, there is little empirical work on the conflict between creditors and management. In this paper, the author examines how managerial entrenchment affects debt structure. The results provide a comprehensive picture of how corporate governance influences debt choice(s).

Suggested Citation

  • Daniel Tut, 2022. "Debt dynamic, debt dispersion and corporate governance," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 19(4), pages 744-771, July.
    • Handle: RePEc:eme:ijmfpp:ijmf-10-2021-0522
    DOI: 10.1108/IJMF-10-2021-0522
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    More about this item

    Keywords

    Corporate governance; Ownership structure; Debt structure; Entrenchment; Creditors rights;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G2 - Financial Economics - - Financial Institutions and Services
    • 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
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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