Debt Specialization




  • KAI LI

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    • Paolo Colla is at Università Bocconi; Filippo Ippolito is at Universitat Pompeu Fabra; and Kai Li is at the University of British Columbia. We thank an anonymous referee, an Associate Editor, Cam Harvey (Editor), Miguel Ferreira, Mark Flannery, Emilia Garcia, Vidhan Goyal, Rob Heinkel, Mark Huson, Wei Jiang, Robert Kieschnick, Mark Leary, Mike Lemmon, Dave Mauer, Michael Meloche, Gordon Phillips, Josh Rauh, Jay Ritter, Zacharias Sautner, Pei Shao, Kostas Tzioumis, Philip Valta, Feng Zhang, Mengxin Zhao, seminar participants at City University London, Federal Reserve Board of the Governors, National University of Singapore, National Technological University of Singapore, New University of Lisbon (Nova), Office of the Comptroller of the Currency, Pompeu Fabra University, Princeton University, UBC, Singapore Management University, Stockholm School of Economics and SIFR, University of Alberta, Universidad Carlos III de Madrid, and conference participants at the 6th Portuguese Finance Network Conference (Azores), the China International Conference in Finance (Beijing), the ESSFM Conference (Gerzensee), the European Finance Association Meetings (Frankfurt), the French Finance Association Meetings (Montpellier), the Northern Finance Association Meetings (Winnipeg), the American Finance Association Meetings (Chicago), and the Midwest Finance Association Meetings (New Orleans) for helpful comments. We thank Milka Dimitrova, Huasheng Gao, and Feng Zhang for excellent research assistance. Colla wishes to thank the Bendheim Center for Finance at Princeton University for its hospitality and support. Li wishes to acknowledge financial support from the Social Sciences and Humanities Research Council of Canada. All remaining errors are our own.


This paper examines debt structure using a new and comprehensive database on types of debt employed by public U.S. firms. We find that 85% of the sample firms borrow predominantly with one type of debt, and the degree of debt specialization varies widely across different subsamples—large rated firms tend to diversify across multiple debt types, while small unrated firms specialize in fewer types. We suggest several explanations for why debt specialization takes place, and show that firms employing few types of debt have higher bankruptcy costs, are more opaque, and lack access to some segments of the debt markets.