Clientele Effects Explain the Decline in Corporate Bond Maturities

Abstract

The average maturity of newly issued corporate bonds has declined substantially over the past 40 years, and the traditional determinants of debt maturity fail to explain this decrease fully. We show that the changing composition of the investors in the corporate bond market affects the maturity of new bond issues. The results of a Granger causality test, a natural experiment, and a regulatory study suggest that a decline in ownership share of insurance companies—which prefer long-term bonds—in the corporate bond market explains the maturity decline. These findings illustrate how investor preferences can have real effects on corporations.