The Maturity Structure of Corporate Debt

2002

We examine the determinants of corporate debt maturity while taking into account the interdependent relation between maturity and leverage. We do this by estimating a simultaneous-equations model on debt maturity and leverage for a sample of bond-issuing firms. To compare with previous studies, we also estimate a singleequation model on debt maturity using OLS. We define debt maturity as either the maturity of bonds at issuance (incremental approach), or the percentage of a firm's total debt that matures in more than three years (balancesheet approach). Corroborating the findings of many previous studies, our single-equation OLS results support the underinvestment hypothesis purporting that firms with greater growth opportunities have shorter-term debt. However, under the simultaneous-equations model, the negative relation between a firm's debt maturity and its growth opportunities ceases to hold. Instead, it is the leverage decision that is influenced by growth opportunities. This suggests that existing models may overestimate the effect of growth opportunities on debt maturity.

An appropriate debt maturity structure is essential for firms to enable them align asset structure to liabilities to prevent a mismatch. This study investigates the role of firm-level and institutional variables on debt maturity structure in selected African countries. Using panel generalised method of moment that addresses endogeneity problem; our findings reveal a dynamic process of adjustment to optimal debt maturity structure. Furthermore, firm-level variables (leverage, asset structure and firm size) provide support for the contracting cost, signalling and matching principle theories of debt maturity structure. Results of institutional variables suggest that better developed institutions promote long-term debt maturity structures.

SSRN Electronic Journal, 2014

This paper analyzes the effect of firm-and country-level determinants on debt maturity structure and how this effect varies across countries. Results for 39 countries indicate that firm-level variables such as asset maturity, size, firm quality and leverage affect debt maturity structure. While the efficiency of the legal system and the bank concentration show a positive relationship with debt maturity, the degree of investor protection and the weight of banks in the economy have a negative effect on firm debt maturity. However, these firm-and country-level determinants vary according to firm size, institutional and legal environment, and banking structure of the country. The higher the level of legal efficiency, the higher the fulfillment of the agency cost and signaling hypotheses and the lower the validity of the matching hypothesis.

2010

This study examines the capital structure and debt maturity choices of firms in a crosssection of 39 developed and developing countries, focusing on the effect of the countries' public policies and institutional structures. Our analysis suggests that a country's taxation and inflation policies as well as its legal institutions have an important effect on how its corporations are financed. Specifically, the preferential tax treatment of dividends is associated with lower leverage, high inflation is associated with lower leverage and the use of short-term debt and corruption increases financial leverage and reduces the maturity structure of the debt. However, controlling for corruption, the legal system per se -i.e., whether the country adopts a common law system -only influences the debt maturity decision. In addition, the financial institutions that supply capital influence the type of capital that is used. In particular, countries with large amounts of bank deposits tend to have shorter debt maturities and countries with a greater presence of other institutional investors are less levered and have longer debt maturities. We also find that the presence of information intermediaries is associated with lower leverage and the use of trade credit, highlighting their role in facilitating information dissemination.

1996

We document the determinants of the term to maturity of 7,369 bonds and notes issued between 1982 and 1993. Our main finding is that large firms with investment grade credit ratings typically borrow at the short end and at the long end and of the maturity spectrum, while firms with speculative grade credit ratings typically borrow in the middle of the maturity spectrum. This pattern is consistent with the theory that risky firms do not issue short-term debt in order to avoid inefficient liquidation, but are screened out of the long-term debt market because of the prospect of risky asset substitution.

AFRICAN JOURNAL OF BUSINESS MANAGEMENT, 2012

This paper investigates the determinants of the maturity structure of Czech corporate debt. A theoretical section provides an overview of contemporary theories on corporate debt maturity structure. An empirical section describes an econometric model that shows that long-term debt increases with company size and leverage and asset maturity. The impact of growth options, collateralizable assets, corporate-tax rate, and company-level volatility proves statistically insignificant. Finally, the paper discusses the limitations of the results in terms of data, variables, and determinants.

The Journal of Finance, 2005

This study documents that managerial stock ownership plays an important role in determining corporate debt maturity. Controlling for previously identified determinants of debt maturity and modeling leverage and debt maturity as jointly endogenous, we document a significant and robust inverse relation between managerial stock ownership and corporate debt maturity. We also show that managerial stock ownership inf luences the relation between credit quality and debt maturity and between growth opportunities and debt maturity. * Datta and Iskandar-Datta are in the Department of Finance at the School of Business Administration, Wayne State University; Raman is in the Department of Finance at Bentley College. Datta acknowledges support from the T. Norris Hitchman Endowed Chair. We thank Husayn Shahrur, the seminar participants at the University of Alabama and Wayne State University, and especially the referee and Rob Stambaugh (the editor) for valuable comments. The usual disclaimer applies.

Journal of Financial Stability, 2019

This study examines the effect of policy uncertainty on corporate debt maturity structure. We find that elevated levels of policy uncertainty lead firms to shorten debt maturity, indicating that firms become more cautious to committing to long-term debt obligations and is suggestive of increased risk aversion during high policy uncertainty periods. However, not all firms react similarly. In contrast to Myers' (1977) prediction, high growth firms lengthen debt maturity during high policy uncertainty periods. The evidence regarding the relationship between debt maturity and credit quality is not non-monotonic as firms with highest and lowest credit quality diverge in terms of debt maturity when policy uncertainty is elevated. Further, larger firms increase their debt maturity, while financially-constrained firms and firms with greater exposure to domicile political environment obtain short-term debt. The results are robust to a battery of tests including the use of instrument variable and placebo analysis.

Journal of Banking & Finance

We study the extent to which a firm's debt maturity structure affects its borrowing costs from banks. By examining the syndicated loans from 1990 to 2014 in the U.S. market, we find that a firm's short-maturity debt structure is a major determinant of loan spreads after accounting for firm-and loan-specific variables, and firm and year fixed effects. A one-standard-deviation increase in the ratio of short-term debts to total assets increases the mean loan spread by 11.44bps, representing an additional $0.643 million in total interest expense. The result supports the rollover risk hypothesis that short-term debts intensify shareholder and bondholder conflicts and lead to greater credit risk. In addition, we demonstrate that high-growth firms experience a significantly smaller increase in loan spread than low-growth firms as the short-term debt ratio increases. This finding is consistent with the asset substitution theory that short-term debts mitigate the overinvestment problem and therefore reducing firm risk.

Accounting & Finance, 2012

We examine the determinants of debt maturity in the Australian capital market with the Top 400 firms listed on the Australian Securities Exchange for the period 1989 to 2006. We find that Australian firms not only exhibit a positive leveragematurity relationship but also use short-term debt to signal their high quality to the market. Our results are robust to different estimation methods that control for endogeneity and error-dependence. We also find that ignoring the interaction between leverage and maturity can lead to erroneous conclusions about the support for the matching principle, the agency costs hypothesis and the transaction costs hypothesis.