Abstract
This paper models the interrelationship between maturity and debt type decisions that arise from agency and flotation cost hypotheses. Private debt and short-term debt are substitutes for resolving agency conflicts, whereas large public debt issues and lengthening maturity are alternative mechanisms for mitigating large fixed transaction costs. Using a sample of international bonds and syndicated loans of Australian firms, we find evidence that maturity has a strong direct effect on debt choice, but weak evidence that debt choice affects maturity. However, a direct simultaneous relationship is found when Eurobonds are excluded from the sample or treated as private debt.
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