Abstract
We study how firms choose their debt maturity structure. We argue that because of lower information-gathering costs, institutional investors prefer to invest in firms with bonds outstanding across multiple maturities. We show that, in segmented markets, this preference for firms with bonds of multiple maturities generates excess demand by institutional investors for these bonds. This greater demand is especially due to larger institutions, and mostly insurance companies. This results in lower bond yields, both in the primary as well as the secondary bond markets. Aware of these benefits, firms respond by issuing bonds across the spectrum of maturities. However, geographical segmentation of financial markets constrains the ability of the firms to exploit such a strategy.
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