The adjustment speed of debt maturity structures: Evidence from African countries

Abstract

ABSTRACTThis paper aims to examine the adjustment speed of debt maturity structures within the context of African countries. Dynamic adjustment models using system GMM proposed by Blundell and Bond (1998) were employed to analyze data pertaining to 986 non-financial firms drawn from nine African countries. We find evidence that firms in Africa adjust their debt maturity structures to a target. Our results also indicate that the legal protection afforded to investors and the efficiency of the legal system enhance the pace at which firms in Africa rebalance their debt maturity structures. The evidence shows that firms in richer and fast growing economies experience comparatively rapid adjustments to their debt maturity structures than is the case in poorer and slow-growth economies. In addition, the size and growth prospects of firms positively enhance adjustment speed while the distance from optimal maturity structures deters the rebalancing pace. These findings signify the role that agency, bankruptcy and transaction costs, liquidity pressure and financial flexibility play in the maturity structures decision of firms in Africa.