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Outline

Title
Abstract
Introduction
Background Literature and Hypotheses Development
Sample Formation and Methodology
Methodology
Empirical Results
Univariate Analysis
Multivariate Analysis
Supplementary Analysis
Results with Alternative Debt Maturity Measure
Results Using an Instrumental Variable
Results Considering the Financial Crisis
Conclusions
References

Policy uncertainty and the maturity structure of corporate debt

Profile image of Trang DoanTrang Doan

2019, Journal of Financial Stability

https://doi.org/10.1016/J.JFS.2019.100694
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18 pages

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Abstract

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.

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