Author ORCID Identifier
Date Available
5-7-2024
Year of Publication
2024
Degree Name
Doctor of Philosophy (PhD)
Document Type
Doctoral Dissertation
College
Business and Economics
Department/School/Program
Finance and Quantitative Methods
First Advisor
Dr. Kristine W. Hankins
Abstract
The dissertation consists of three chapters exploring three different facets of corporate debt structure choice. In the first chapter, “Risk Management and the Choice between Secured and Unsecured Debt: Evidence from Natural Experiment,” I study whether and how corporate hedging affects firms’ choice between secured and unsecured debt. Exploiting the introduction of steel futures as a natural experiment, I provide causal evidence that risk management enables firms to switch from secured to unsecured debt without sacrificing debt capacity. Cross-sectional evidence supports the interpretation that risk management drives the results. The effects are stronger for firms that are more likely to engage in financial hedging, that derive relatively less benefit or face higher costs from employing secured debt, and that are less financially healthy but with some collateral capacity for financial hedging. To the extent that secured debt financing is associated with a loss of operating flexibility or future financing slack for borrowing firms, my findings suggest a potential channel through which risk management increases firm value that could be masked when heterogeneous debt types are treated uniformly. In the second chapter, “Stock Price Informativeness and Debt Heterogeneity,” I ask whether and how stock price informativeness (SPI) affects corporate debt heterogeneity, defined as the degree of dispersion in debt choice. I document strong evidence that SPI is positively related to a more heterogeneous debt structure. A battery of tests, including a quasi-natural experiment and an IV-2SLS analysis, supports causal interpretation. Cross-sectional evidence reveals that the relation is stronger for firms with higher expected financial distress costs and a higher degree of information asymmetry, consistent with the notion that the reduction in distress costs and alleviation of information asymmetry are the main mechanisms. My findings add to the growing literature on the real effects of financial markets by showing that SPI significantly influences firms’ debt concentration structure adjustment through the channels distinct from the learning channel. In the third chapter, “Government Subsidies and the Choice between Bank and Public Debt,” I ask whether and how government subsidies to U.S. corporations – a growing area of policy interest – affect firms’ choice between bank and public debt. I find that subsidized firms shift their debt financing structure toward more public debt and away from bank debt. These key findings are robust to alternative regression model specification as well as an IV approach exploiting changes in powerful congressional committee chairmanships. Cross-sectional tests reveal that the documented effect of government subsidies on the shift toward public debt is amplified among firms with better governance, severe information asymmetry, and more positive political sentiment, consistent with the notion that enhanced external scrutiny and increased perceived credibility stemming from endorsement effects diminish the need for the traditional monitoring and informational roles of bank debt.
Digital Object Identifier (DOI)
https://doi.org/10.13023/etd.2024.92
Recommended Citation
Oh, Kyuyoung, "Essays on Corporate Debt Structure" (2024). Theses and Dissertations--Finance and Quantitative Methods. 16.
https://uknowledge.uky.edu/finance_etds/16
