Abstract: This paper investigates the effect of firms’ debt maturity composition on their product pricing behaviors. To empirically examine this, we construct a novel micro-level dataset that links product prices with data on manufacturers’ debt maturity schedules. By leveraging both a quasi-exogenous credit supply shock and a monetary policy shock, we show that firms with higher short-term debt ratios increase product prices more substantially when refinancing of maturing debt becomes more costly and refinancing options are limited. Our findings suggest that firms respond to refinancing challenges by strategically raising prices to mitigate rollover risk. To rationalize these results, we develop a dynamic firm model where firms issue both short- and long-term debt to finance operations in the face of negative cash-flow shocks. In our model, firms set pricesstrategically, which in turn affects the accumulation of customer capital. The results indicate that under increased debt repayment pressure and unfavorable refinancing conditions, firms raise product prices to mitigate rollover risk, even at the cost of losing future customers. Overall, our findings underscore the critical role of debt maturity profiles in shaping firms’ product pricing decisions.
Kerry Siani, Massachusetts Institute of Technology
Abstract: Using a newly comprehensive dataset that merges firm-level information with corporate bond issuance and holdings, we show that firms strategically use bond issuance not only to minimize their cost of capital but also to diversify their investor base. Investor specialization in certain bond characteristics allows firms to effectively shape their bondholder composition through issuance decisions. We find that firms with more diversified bondholder exhibit increased resilience to credit market shocks. Our analysis underscores the dual function of market timing in corporate bond issuance: it serves both to reduce capital costs and as a strategy for credit supply diversification. These findings emphasize the pivotal role of financially sophisticated firms in strategically issuing assets in a market increasingly reliant on non-bank intermediaries.
Discussant: Kristy Jansen, University of Southern California
Abstract: Using limitations to the deductibility of interest payments triggered by the introduction of interest ceiling rules globally, we show that affected private firms reduce leverage relative to unaffected firms. In support of a causal effect of taxes on capital structure, this effect holds for firms near limitation thresholds, in matched samples, and in countries mandating these rules. Falsification tests show no reduction in leverage for affected firms around pseudo-reform years. More broadly, across 93 countries, we document that private firms tend to decrease leverage in response to tax rate cuts and increase leverage in response to corporate tax rate hikes.
