Advertisement

Long-Term Debt

  • John B. GuerardJr.
  • Anureet Saxena
  • Mustafa Gultekin
Chapter
  • 7 Downloads

Abstract

Long-term debt is the term given to those obligations the firm does not have to pay for at least a year. They are also called funded debt or fixed liabilities. Items that may be classed as long-term debt are bonds, debentures, term loans, or, in small firms, mortgages on buildings. The portion of the long-term debt due within the current year is carried in the current liability section of the balance sheet. Firms in the US issue far more debt than equity shares. In most years during the 1963–2003 period, firms have issued six to eight times more debt than equity. (Of course, most increase in equity is through retained earnings.) Issuing debt raises capital for firm growth and expansion without possibly lessening current stockholder control. The floatation costs are less on debt than on equity, and the cost of debt is less than the expected shareholder return on equity.

Reference

  1. Bierman, H. (1972). The bond refunding decision. Financial Management, 22–29.Google Scholar
  2. Brealey, R. A., & Myers, S. C. (2003). Principles of corporate finance (7th ed.). Boston, MA: McGraw-Hill/Irwin. Chapter 26.Google Scholar
  3. Guerard Jr., J. B. (2010). The corporate sector as a net exporter of funds. In J. R. Aronson, H. L. Parmet, & R. J. Thorton (Eds.), Variations in economic analysis: essays in Honor of Eli Schwartz. New York: Springer.Google Scholar
  4. Hicks, J. R. (1937). Value and capital. London: Oxford University Press.Google Scholar
  5. Macaulay, F. R. (1938). Some theoretical problems suggested by the movements of interest rates. New York: Columbia University Press.Google Scholar
  6. Malkiel, B. G. (1962a). Expectations, bond prices, and the term structure of interest rates. Quarterly Journal of Economics, 76, 197–218.CrossRefGoogle Scholar
  7. Malkiel, B. G. (1962b). The term structure of interest rates. American Economic Review, 54, 532–543.Google Scholar
  8. Myers, S. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5, 147–176.CrossRefGoogle Scholar
  9. Schwartz, E. (1962). Corporate finance. New York: St. Martin’s Press, Chapter 9.Google Scholar
  10. Schwartz, E. (1967). The refunding decision. Journal of Business, 40, 448–449.CrossRefGoogle Scholar
  11. Van Horne, J. C. (2002a). Financial management & policy (12th ed.). Upper Saddle River: Prentice Hall. Chapter 18.Google Scholar
  12. Van Horne, J. C. (2002b). Financial market rates and flows (6th ed.). New York: Prentice-Hall, Inc..Google Scholar

Copyright information

© Springer Nature Switzerland AG 2021

Authors and Affiliations

  • John B. GuerardJr.
    • 1
  • Anureet Saxena
    • 2
  • Mustafa Gultekin
    • 3
  1. 1.McKinley Capital Management, LLCAnchorageUSA
  2. 2.McKinley Capital Management, LLCStamfordUSA
  3. 3.Kenan-Flagler Business SchoolUniversity of North Carolina Chapel HillChapel HillUSA

Personalised recommendations