Does Debt Diversification lead to a Discount in Firm Value?

  • Nemiraja Jadiyappa Institute of Management Technology (IMT), Nagpur
  • Namrata Saikia Indiana University of Pennsylvania
  • Bhavik Parikh Saint Francis Xavier University

Abstract

Corporate firms access multiple sources of debt simultaneously. This study analyzes the impact of debt diversification on firm value. We argue that, when firms diversify their debt sources, the monitoring role played by debt holders decreases as a result of the free rider problem. Hence, such firms should experience a value discount in the capital markets. Our empirical analysis provides evidence for the existence of a value discount in the capital markets for firms accessing multiple sources of debt. Our results remain robust for alternative measures of debt diversification.

Published
2019-05-01

How to Cite
Jadiyappa, N., Saikia, N., & Parikh, B. (2019). Does Debt Diversification lead to a Discount in Firm Value?. Applied Finance Letters, 8, 24-30. https://doi.org/10.24135/afl.v8i0.112
Section
Articles