Debt and Asset Maturity - Do Companies Match, and If So, Why?

Abstract

This study re-examines the impact of asset maturity on debt maturity choices. The pertinent literature suffers from the fact that asset maturity typically is hard to observe. In this paper we exploit the fact that for energy utilities asset maturity can directly be measured. Using a sample of 193 energy utility companies in the period 2002 to 2009 we first show that asset maturity proxies used in the literature do a fairly good job. Second, we present evidence that asset maturity is not only a statistically, but also economically significant driver for debt maturity. Third, we find that firms do not determine the maturity of newly issued debt instruments with respect to overall asset maturity, but in a way that their maturity gap is reduced. We estimate that an increase in maturity gap by one year causes the maturity of the new debt instrument to be almost four years longer than average debt maturity.