Essays on corporate debt financing decisions

This thesis develops our knowledge of corporate debt financing policies. It consists of three essays that attempt to answer the following questions: Does banking competition affect corporate debt maturity? What is the impact of banking competition on firms' debt maturity speed of adjustment? Whether labor mobility influences corporate debt structure? In the first essay, I examine how banking competition affects debt maturity choice. My findings show that firms located in states with higher state-level banking competition borrow more long-term loans from banks. The positive impact of banking competition on corporate debt maturity is more pronounced for firms with an unfulfilled need for long-term debt, including financially constrained firms and firms operating with under target debt maturity levels. These findings are consistent with the conjecture that banking competition intensifies banks' moral hazard incentives, potentially motivating them to provide more long-term credit. Overall, this study provides novel insights into the significance of supply-side conditions relating to the banking sector for firms' debt maturity policies. In the second essay, I examine whether banking competition influences firm's debt maturity speed of adjustment (SOA). I find that firms located in states that are completely open to branching reforms adjust faster to their optimal debt maturity levels. This is consistent with the notion that banking competition provides a positive shock to credit market supply and transaction costs, thereby lowering firms' debt maturity adjustment costs. Further analysis suggests that the positive relation between banking competition and debt maturity SOA is more pronounced for financially constrained and opaque firms, as well as during periods with unfavourable economic conditions and high policy uncertainty, which may be characterized by higher debt maturity adjustment costs. The findings highlight the importance of banking competition, as an overlooked determinant of debt maturity SOA, thereby complementing prior studies focusing mainly on firm-level factors. In the third essay, I investigate the impact of labor mobility on corporate debt structure. My results indicate that increases in state-level labor mobility enhance firms' dependence on bank debt. The positive association between labor mobility and bank debt is more pronounced for firms that attach more value to their human capital and those that operate in highly competitive industries. This is consistent with the view that bank monitoring is necessary to curb managerial risk-taking incentives that occur in highly mobile labor markets. Overall, these findings suggest that labor markets, play a crucial role in shaping firms' financial policies.