DP14572 The Dynamics of Corporate Debt Structure
We find that US public firms spread out their debt more across different sources in recession quar-
ters, making measures of debt concentration move pro-cyclically. There is substantial cross-sectional
variation in these dynamics. Firms with less leverage and higher debt concentration further de-
crease leverage and increase debt concentration in recessions. The opposite is true for firms with
higher leverage and lower debt concentration. The latter (former) group consists of firms that
are larger (smaller), less risky (riskier), have fewer (more) growth options and lower (higher) cash
levels. While the fraction of total assets funded by bank debt increases in the recession by approx-
imately 18% of its average non-recession level, the equivalent measure for market debt drops by
approximately 7%. Bank debt, in particular, term loans, appears to become more attractive during
recession quarters, especially for borrowers characterized by high profitability while firm size, in
contrast, has a positive effect on the use of market debt in recessions. A cluster analysis shows
that a substantial fraction of frms changes its debt policy over the business cycle. For example,
12% of the firms that exclusively use bond-financing pre-recession switch to bank-financing during
recessions.
