Financial distress, refinancing, and debt structure

Evan Dudley, Qie Ellie Yin*

*Corresponding author for this work

    Research output: Contribution to journalJournal articlepeer-review

    6 Citations (Scopus)


    We examine changes in debt structure when firms experience financial distress. At these points in time, firms refinance and undergo substantial changes in priority structure. Specifically, we find that firms diversify their priority structure relative to its pre-distress composition. We show, using a simple model, that these changes are the firm's optimal response to its joint liquidity and investment needs. Additional predictions on the yield spreads of bonds issued to meet the firm's liquidity needs are also supported by the data.

    Original languageEnglish
    Pages (from-to)185-207
    Number of pages23
    JournalJournal of Banking and Finance
    Early online date30 Jul 2018
    Publication statusPublished - Sept 2018

    Scopus Subject Areas

    • Finance
    • Economics and Econometrics

    User-Defined Keywords

    • Capital structure
    • Debt structure
    • Credit downgrade
    • Priority spreading
    • Priority structure
    • Liquidity shock


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