Essays on corporate debt structure, leverage puzzle, competition and trade war

• Main Author: Yao, Yumei
• Format: Dissertation
• Language: English
• Published: University of Glasgow 2023
• Subjects: HG Finance
• DOI: 10.5525/gla.thesis.83757

The thesis examines the corporate debt structure and costs of various kinds of debt including the total debt, general bank debt and public debt as well as six types of specific debt components from the perspectives of three independent and related topics. First, I reveal the underlying sources of the leverage puzzle in terms of the unrated firms' components of corporate debt structure. For the unrated firms, the leverage puzzle is significantly contributed by the revolving credit of bank debt as well as the bonds and notes of public debt, but unrated status weakens the puzzle since the unrated firms with high profits increase the two types of debt. For robustness, I consider another two factors that might impose effects on the relationship between profitability and debt: banks' credit supplies and monetary policy. Second, I investigate how product market competition affects specific components of corporate debt and the costs of six types of debt. The analyses of various types of debt in fine detail reveal that product market competition generally reduces most of the debt. Nevertheless, competition usually mitigates the leverage puzzle of the negative relationship between profitability and specific types of debt. Besides, competition raises the credit spreads of all types of debt due to the bank monitoring of bank debt and the need for public debt for reducing external monitoring pressure. Third, I take the trade war between the U.S. and China intensified by Section 301 in 2018 as an exogenous shock and study a quasi-natural experiment of firms affected by the trade war. Using causal inference, I investigate the impact of the trade war on, competition, the corporate debt structure, and costs. I contribute to the debate on the benefits and losses due to the trade war by showing that although credit spreads decrease, the trade war did not alleviate competition, but rather it intensified competition and hampered debt financing.