Debt dynamic, debt dispersion and corporate governance
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 20 July 2022
Issue publication date: 5 July 2023
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).
Keywords
Acknowledgements
The author would like to thank Ambrus Kecskes, Yelena Larkin, Melanie Cao, Moshe Milevsky, Peter Cziraki, George Georgopoulos, Sofia Johan, Jonathan Karpoff, Paolo Fulghieri, NFA conference referee and seminar participants at the Schulich School of Business- York university for helpful discussions, comments and suggestions. All errors remain the author’s own.
Citation
Tut, D. (2023), "Debt dynamic, debt dispersion and corporate governance", International Journal of Managerial Finance, Vol. 19 No. 4, pp. 744-771. https://doi.org/10.1108/IJMF-10-2021-0522
Publisher
:Emerald Publishing Limited
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