The Determinants of Corporate Debt Mix

Abstract

We examine the drivers of the choice among non-bank private (144A) debt, bank loans, and public debt made by 988 non-financial firms during 1993-2007. We document new evidence that, besides firm-level variables, macroeconomic factors are important determinants of changes in corporate debt mix. Our findings highlight the importance of macroeconomic variables on firms’ borrowing decisions as predicted by Diamond (1991). Most importantly, we find that the majority of the drivers of changes in corporate debt mix vary over time and across economic conditions, which would address the concern of Denis and Mihov (2003) about their sample’s inability to examine the pattern of debt mix over time. We also find strong evidence that private debt and public debt are substitutes as widely hypothesized, which is inconsistent with Rauh and Sufi (2010).