Essays on Capital Structure Decisions

goutham abotula

doi:10.7273/000008613

For the first chapter of this dissertation, my coauthor and I investigate the impact of debt maturity dispersion on cash holdings. We find that cash holdings are significantly lower for firms with dispersed debt maturity, and this finding is robust to entropy balancing and allowing for the simultaneous selection of dispersion and cash holdings. The relation is strongest for firms with shorter debt maturity and firms that rely on precautionary cash, such as financially constrained firms and firms with volatile cash flows. Markets place a lower value on the cash of firms with high or increasing dispersion, and these firms retain less cash. Collectively, the evidence implies that firms can hedge rollover risk with dispersed debt maturity as an alternative to holding costly cash. For the second chapter, my coauthors and I use a sample of 19 countries to examine the value of operating leases as a risk-shifting mechanism using the EPU index. We document that the use of operating leases by firms increases in countries with heightened policy uncertainty. This finding is robust to alternative econometric specifications and measures of operating leases. The positive relationship between EPU and operating leases remains when instrumental variable analysis is employed to address potential endogeneity concerns. Moreover, the increased use of operating leases in the presence of policy uncertainty is more pronounced for financially constrained firms; firms facing greater industry-level operating volatility; firms operating in countries where contracts are more likely to be enforced; and firms that are located in countries with weaker creditor rights.

Essays on Capital Structure Decisions

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