o Time : September 22, Friday 12:00 ~ 2:00 p.m.

o Venue : 9201(The 2nd floor seminar room)


Sources of Financing and Uses of Funds: Evidence from Public Debt Issues

-Abstract

This paper investigates the variation in the structure of debt financing as a function of the intended use of funds for the raised capital. We argue that the characteristics of the firm''s marginal investment project are a primary determinant of the security design decision. Specifically, projects with steady expected cash flows are more likely to be financed with straight, secured and/or long-term debt. Projects with option-like cash flows are more likely to be financed with convertible, non-secured, and/or short-term debt. Employing a detailed sample of debt securities issued by US firms over the period 1971 to 2004, we examine the within-industry and within-firm variation in the structure of debt issuance. Consistent with our hypothesis that the uses of funds matter for debt design, we find that after controlling for firm characteristics, firms have a tendency to issue convertible, short-term, and unsecured debt to finance growth options and intangible assets, while straight, long-term, secured debt financing tends to be more focused on the purchase of tangible assets and replacing existing debt.