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The determinants of corporate cost of debt during a financial crisis
Journal article   Open access   Peer reviewed

The determinants of corporate cost of debt during a financial crisis

Tauhidul Islam Tanin, Ashutosh Sarker, Shawkat Hammoudeh and Jonathan A. Batten
The British accounting review, v 56(6), 101390
01 Nov 2024
DOI: https://doi.org/10.1016/j.bar.2024.101390
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https://doi.org/10.1016/j.bar.2024.101390View
Published, Version of Record (VoR) Open

Abstract

Cost of debt COVID-19 pandemic Fixed effects and LSDVC Global financial crisis (GFC) Quantile regression
Panel data from publicly listed US industrial firms is used to investigate how firm-specific cost of debt (COD) determinants impact COD at different quantiles during a financial crisis. Six COD determinants: firm size, firm age, profitability, leverage, liquidity, and firm value, and advanced estimators: robust and bootstrapped fixed effects, bias-corrected least square dummy variable (LSDVC), and quantile regression, are employed within the context of pecking-order theory. The results show that firm size and leverage negatively impact COD, while liquidity positively impacts it when COD is high (90% quantile). The degree of profitability only confirms the pecking order theory when COD is extremely low (10% quantile) and contrasts with the theory for the 25% and above COD quantiles during the Global Financial Crisis (GFC). These findings confirm that the practicalities of access to finance matter during a financial crisis for corporate financing decisions. •US industrial firms' cost of debt (COD) determinants are studied in the context of pecking order theory.•Robust and bootstrapped fixed effects, LSDVC, and quantile regressions are employed.•Leverage positively affects the COD in the low quantiles and negatively in others.•Profitability and liquidity positively affect COD in the higher quantiles.•The finding for profitability mostly contrasts with expected pecking order theory.

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