Corporate Structure Complexity and Cost of Debt
Huynh, Hong-Hanh; Phan, Hoang-Long
Year: 2023 Volume: 73 Issue: 4 Pages: 375-391
Abstract: This paper investigates how a firm’s cost of debt is related to the complexity of its corporate structure. Our hand-collected data sample covers 3271 loan-year observations of 815 publicly listed US firms for the period between 2012 and 2017. The results show a positive and significant relationship between corporate structure complexity and cost of debt. More complex firms are also found to have lower debt ratings and more financial covenants enclosed in their loan contracts. These findings suggest that greater corporate structure complexity is associated with increased credit risk. Instrumental variable analysis and a number of additional tests further confirm our results. Our results also hold for corporate bonds.
JEL classification: G39, L22
Keywords: corporate structure, cost of debt, complexity
DOI: https://doi.org/10.32065/CJEF.2023.04.03
RePEc: https://ideas.repec.org/a/fau/fauart/v73y2023i3p375-391.html
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