| This dissertation consists of two essays which investigate U.S. public debt. The first essay is my working paper, and the second one is a joint work with Professor David Mauer and Professor Han Xia.;The first essay provides evidence on how the access to the public stock market affects borrowing costs in the public debt market, using U.S. publicly-traded and privately-held firms' data from the Standard & Poor's Capital IQ database. On average, private firms pay 30 to 50 bps higher at-issue yield spreads in the public bond market than publicly-traded firms, controlling for debt and firm characteristics, liquidity, macro-level factors, time and industry fixed effects, and possible endogeneity issues. The disadvantage of private firms in the public debt market is unlikely to be driven by their parent companies. I find that existence of parent firms actually reduces the higher cost of debt issues by private firms; especially when the parent company is publicly traded. I also show that a banking relation can alleviate the disadvantage of being private in the public debt market. In addition, when a private firm has a public debt issue in the recent past, the private firm does not pay a significantly higher offering yield spread than an otherwise identical public firm. Evidence supports the hypothesis that the public stock market can reduce asymmetric information, and thus decrease the borrowing cost in the public debt market.;The second essay investigates the effects of private debt on public debt capacity through performance pricing provisions in bank debt that either increase or decrease the interest rate on bank loans as the credit rating or financing condition of the firm changes. We find that performance pricing provisions in bank loans have significant effects on public debt capacity. Specifically, interest-increasing performance pricing has a positive effect on public debt capacity which is partially offset by growth opportunities. In contrast, interest-decreasing performance pricing provisions decrease public debt capacity, but this negative effect is partially offset when the firm has risky public debt outstanding. Our evidence is consistent with both signaling and agency-theoretic explanations for performance pricing provisions. |
