Debt decisions in deregulated industries

Deregulation significantly affects firms’ debt decisions. Prior to deregulation, regulated firms depend more on long-term and public debt but reduce this dependence considerably during deregulation. Cross-sectional analysis shows that the lower use of long-term and public debt results from changing...

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Bibliographic Details
Published in:Journal of corporate finance (Amsterdam, Netherlands) Netherlands), 2016-02, Vol.36, p.230-254
Main Author: Ovtchinnikov, Alexei V.
Format: Article
Language:English
Subjects:
Corporate debt
Debt decisions
Debt management
Debt maturity
Decision theory
Deregulation
Public and private debt issues
Regulated industries
Regulatory reform
Studies
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Summary:Deregulation significantly affects firms’ debt decisions. Prior to deregulation, regulated firms depend more on long-term and public debt but reduce this dependence considerably during deregulation. Cross-sectional analysis shows that the lower use of long-term and public debt results from changing firm sensitivities to determinants of debt decisions triggered by deregulation. Consistent with credit and liquidity risk theories of debt maturity, the concave relation between firm quality and debt maturity is attenuated among regulated firms. Inconsistent with these theories, the convex relation between firm quality and public debt issues exists only among regulated firms. I find limited support for other theories. •Deregulation significantly affects firms’ debt decisions.•Newly deregulated firms reduce reliance on long-term and public debt.•The lower use of long-term and public debt results from changing firm sensitivities to determinants of debt decisions.•The results are consistent with credit and liquidity risk theories of debt maturity.•The results are inconsistent with credit and liquidity risk theories of debt composition.
ISSN:0929-1199
1872-6313
DOI:10.1016/j.jcorpfin.2015.12.010