This paper investigates the differential and interactive effects of sectoral and aggregate uncertainty on the corporate debt structure of credit-constrained and credit-unconstrained firms in India.
The panel fixed-effect model was used to examine the effect of sectoral and aggregate uncertainty on corporate debt structure using annual data of 2,405 firms from 1997 to 2020.
An increase in sectoral and aggregate uncertainty leads to a greater increase in total and short-term debt and a decrease in long-term debt for credit-constrained firms than in unconstrained ones. However, sectoral uncertainty affects firms’ debt maturity structure more than aggregate uncertainty. Credit-constrained firms use short-term debt to finance capital expenditure during periods of high sectoral uncertainty and working capital requirements during periods of high aggregate uncertainty. When both sectoral and aggregate uncertainty are high, credit-constrained firms decrease total and short-term debt usage more than credit-unconstrained firms do. Our results are robust to a variety of tests, such as different measures of uncertainty, the use of instrument variables and controlling for economic conditions and financial crises.
This study addresses the differential and interactive effects of sectoral and aggregate uncertainty on corporate debt structure.
