Do Firms Benefit from Taking Heterogeneous Debt? International Evidence from Capital Structure and Product Market Interactions

An extensive body of debt structure research explores the coordination failure among creditors of taking heterogeneous debt. This paper, in contrast, provides empirical evidence for the positive role played by debt heterogeneity in reducing stakeholder-driven costs of high leverage. Using a sample of 25,633 firms from 48 countries over the 1989–2018 period, we find that debt heterogeneity alleviates high leverage costs by simultaneously moderating the adverse responses of competitors, customers, suppliers, and employees. These benefits are more pronounced for countries with weak contracting environments or strong creditor rights, industries with low levels of recovery, and firms with high information asymmetry. Our study contributes to the debate on whether debt heterogeneity adds value to firms, and provides an international lens through which to better understand debt structure