Title: | Do firms borrow at the lowest-cost maturity? The long-term share in debt issues and predictable variation in bond returns |
Authors: | Baker, Malcolm Greenwood, Robin Wurgler, Jeffrey |
Issue Date: | 2-Nov-2001 |
Series/Report no.: | FIN-01-020 |
Abstract: | We document that firms tend to borrow at the lowest-cost maturity. In aggregate time series data, the share of long-term debt issues in total debt issues is negatively related to subsequent excess bond returns, meaning that firms substitute toward long-term debt when the cost of long-term debt is low relative to the cost of short-term debt. The longterm share is also contemporaneously negatively related to the components of the longterm interest rate that predict higher excess bond returns, including inflation, the real short-term rate, and the term spread. The results suggest that firms use predictable variation in excess bond returns in an effort to reduce the cost of capital. |
URI: | http://hdl.handle.net/2451/26558 |
Appears in Collections: | Finance Working Papers |
Files in This Item:
File | Description | Size | Format | |
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FIN-01-020.pdf | 166.68 kB | Adobe PDF | View/Open |
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