Yield Curve and Time‐Varying Debt Concentration

We demonstrate the intertemporal behavior of debt concentration by analyzing firms’ responses to yield‐curve dynamics summarized by the dynamic Nelson–Siegel factors. Firms exhibit countercyclical debt concentration: In bad times, firms increase debt concentration primarily by increasing bank debt and reducing public debt. This pattern is stronger among value firms and financially constrained firms. The yield curve retains explanatory power beyond competing macroeconomic variables, and our conclusions are robust to system‐GMM estimates that instrument the yield‐curve factors with internal lags. Overall, the results suggest that firms adjust debt concentration in response to yield‐curve conditions to reduce expected bankruptcy costs.