Does the external environment matter for the persistence of firms' debt policy?

Abstract

This paper investigates the existence of debt policy persistence and further explores the effects of external environment on the persistence of debt policy from the perspectives of micro-level and macro-level, respectively. We find that both capital structure policy and debt maturity policy are persistent, supporting the path dependence theory and imprinting theory. Another conclusion is that the macro-level financial crisis does significantly reduce the persistence of debt policy, while micro-level environmental uncertainty has no effect on the debt policy persistence. These results suggest that the firms’ debt policy persistence is more likely to be disrupted by a drastic increase in macro-level systemic risk compared with micro-level non-systemic risk.