Financial distress, refinancing, and debt structure

Evan Dudley, Qie YIN*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

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
Volume94
DOIs
Publication statusPublished - Sep 2018

Scopus Subject Areas

  • Finance
  • Economics and Econometrics

User-Defined Keywords

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

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