IDEAS home Printed from
   My bibliography  Save this article

Firm debt structure, firm size and risk volatility in US industrial firms


  • James P. Gander


US industrial-firm panel data on short-term and long-term borrowing (term debt structure) for annual and quarterly time periods over the years 1995 to 2008 are used to test an insulation hypothesis and a related volatility hypothesis. The former test uses a regression model relating the log of the ratio of accounts payable in trade to Long-Term Debt (LTD) to firm size and other variables. The focus is on the firm's response to the US Federal Reserve (FED)'s monetary policy, where the response is a micro perspective on the earlier macro debate over the existence of bank lending channels. The latter hypothesis uses the panel heteroscedastic variances from the first regression procedure to test for a quadratic-form risk function (either U-shaped or inverted U-shaped) using sigma squared and the Coefficient of Variation (CV) as risk indexes and firm size as a determinant. The findings suggest that there is some evidence that US industrial firms in their borrowing behaviour do insulate themselves from the effects of monetary policy and that retained earnings have a significant role in the insulation effect. The evidence also suggests that the risk index, the net variances of the debt ratio, is related to firm size by a U-shaped quadratic function with most of the actual observations on the downward sloping part of the function. As firm size increases, not only does the term-structure ratio fall, but also the volatility falls and at a falling rate of change, approaching zero for a sufficiently large firm.

Suggested Citation

  • James P. Gander, 2012. "Firm debt structure, firm size and risk volatility in US industrial firms," Applied Financial Economics, Taylor & Francis Journals, vol. 22(5), pages 387-393, March.
  • Handle: RePEc:taf:apfiec:v:22:y:2012:i:5:p:387-393
    DOI: 10.1080/09603107.2011.613763

    Download full text from publisher

    File URL:
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    1. repec:fip:fedgsq:y:2007:i:june15 is not listed on IDEAS
    2. Ben S. Bernanke, 2007. "The financial accelerator and the credit channel," Speech 296, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:apfiec:v:22:y:2012:i:5:p:387-393. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Chris Longhurst). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.