Granularity of Corporate Debt (Winner of the 2021 JFQA Sharp Award)

We study whether firms spread out debt maturity dates, which we call "granularity of corporate debt.'' In our model, firms that are unable to roll over expiring debt need to liquidate assets. If multiple small asset sales are less inefficient than a single large one, it can be optimal to diversify debt rollovers across time. Using a large sample of corporate bond issuers during the 1991-2012 period, we establish novel stylized facts and evidence consistent with our model's predictions. There is substantial heterogeneity, i.e., firms have both concentrated and dispersed debt structures. Debt maturities are more dispersed for larger and more mature firms, for firms with better investment opportunities, with higher leverage, and with lower profitability. During the recent financial crisis firms with valuable investment opportunities implemented more dispersed maturity structures. Finally, firms manage granularity actively and adjust toward target levels.