No abstract

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.

We examine both theoretically and empirically a mechanism through which outstanding bank loans a¤ect the …rm balance sheet channel of monetary policy transmission. Unlike other debt, most bank loans have ‡oating rates mechanically tied to monetary policy rates. Hence, monetary policy-induced changes to ‡oating rates a¤ect the liquidity, balance sheet strength, and investment of …nancially constrained …rms that use bank debt. We show that …rms-especially …nancially constrained …rms-with more unhedged bank debt display a stronger sensitivity of their stock price, cash holdings, sales, inventory, and …xed capital investment to monetary policy. This e¤ect disappears when policy rates are at the zero lower bound, which further supports the ‡oating rate mechanism and reveals a new limitation of unconventional monetary policy. We argue that the ‡oating rate channel can have a signi…cant macroeconomic e¤ect due to the large size of the aggregate stock of unhedged ‡oating-rate business debt, an e¤ect that is at least as important as the bank lending channel that operates through new loans.