Corporate debt structure: The long and the short of it. Issue 2 (23rd November 2022)

• Record Type: Journal Article
• Authors: Clark, Steven P.; Park, Min C.
• Is Part Of: Journal of corporate accounting & finance. Volume 34:Issue 2(2023)
• Page Start: 149
• Page End: 165
• Publication Date: 2022-11-23
• Subjects: agency problems -- corporate bonds -- debt maturity -- rollover risk; Accounting -- Periodicals; Accounting -- Law and legislation -- United States -- Periodicals; Corporations -- United States -- Finance -- Periodicals; Corporations -- United States -- Accounting -- Periodicals; 657
• DOI: 10.1002/jcaf.22601
• Languages: English
• ISSNs: 1044-8136

Abstract

Abstract: Consistent with the existence of a rollover risk channel, we document that an increase in short‐term debt proportional to the total debt increases the cost of long‐term debt. The effect of rollover risk is more pronounced for the firms that are vulnerable to unforeseen negative events. Moreover, we find that the marginal effect of short‐term debt on the yield spread is intensified during periods of market illiquidity. Finally, our results suggest that this positive effect on the yield spread due to increased rollover risk is partially offset by a negative effect due to the attenuation of underinvestment problems.