Corporate Debt Maturity Research Articles

Capital market liberalization and corporate debt maturity structure: evidence from the Shanghai-Shenzhen-Hong Kong Stock connect

PurposeThis paper takes the Shanghai-Shenzhen-Hong Kong Stock Connect as a quasi-natural experiment and investigates the impact of capital market liberalization on the corporate debt maturity structure. It also aims to provide some policy implications for corporate debt financing and further liberalization of the capital market in China.Design/methodology/approachEmploying the exogenous event of Shanghai-Shenzhen-Hong Kong Stock Connect and using the data of Chinese A-share firms from 2010 to 2020, this study constructs a difference-in-differences model to examine the relationship between capital market liberalization and corporate debt maturity structure. To validate the results, this study performed several robustness tests, including the parallel test, the placebo test, the Heckman two-stage regression and the propensity score matching.FindingsThis paper finds that capital market liberalization has significantly increased the proportion of long-term debt of target firms. Further analyses suggest that the impact of capital market liberalization on the debt maturity structure is more pronounced for firms with lower management ownership and non-Big 4 audit. Channel tests show that capital market liberalization improves firms’ information environment and curbs self-interested management behavior.Originality/valueThis research provides empirical evidence for the consequences of capital market liberalization and enriches the literature on the determinants of corporate debt maturity structure. Further this study makes a reference for regulators and financial institutions to improve corporate financing through the governance role of capital market liberalization.

Risk spillover effect of resident leverage on corporate debt

Using panel data from 2008 to 2019, this study analyzes the risk spillover effect of resident leverage on the corporate sector. Thus, the results indicate that increasing resident leverage does not create a more favorable macroeconomic environment for an enterprise to deleverage. Instead, it worsens the debt risk of the enterprise through mechanisms such as weakening corporate solvency, changing the corporate debt maturity structure, and enhancing the financial trend.

ESG Performance, Corporate Debt Maturity Mismatch and Financing Constraints

ESG Performance, Corporate Debt Maturity Mismatch and Financing Constraints

Trust and corporate debt maturity mismatch: Evidence from China

AbstractThis study explores the relationship between social trust and firm debt maturity mismatch in the Chinese context. Additionally, we investigate the economic mechanisms through which social trust affects debt maturity mismatch, and the differential roles played by social trust among firms with different characteristics. We employ enterprise trustworthiness scores and provincial blood donation rates as our measures of regional social trust level and find a negative relationship between local trust and firm debt maturity mismatch, suggesting that social trust which promotes ethical norms acts as a restraint on firms' propensity for excessive risk. An alternative but consistent explanation is higher social trust increases debtors' willingness to lend, hence it reduces firms' funding costs and consequently the potential cost‐saving motivation behind such a mismatch. We further document evidence that social trust improves the firm information environment and consequently risk‐taking and/or the ability to reduce funding costs. The study also reveals variations in the role of social trust based on firm characteristics, such as leverage and profitability, and the ownership structure (state‐owned enterprises vs. non‐state‐owned enterprises). The findings contribute to the literature by highlighting the increasing importance of social capital for policy and governance.

What do we Know about Corporate Debt Maturity Structure in Saudi Arabia?

Abstract This study examines the firm-specific and macroeconomic factors that influence corporate debt maturity structure in Saudi Arabia and explores whether existing theories can predict corporate debt maturity structure. The sample includes 121 listed non-financial firms operating in Saudi Arabia over the years 2010-2021 and employs a static ordinary least square (OLS) model before and after incorporating industry fixed effects. Approximately 52% of Saudi firms’ total debt consists of long-term debt, which is higher than other firms' long-term debt usage, operating in emerging markets. Furthermore, the study finds that both firm-specific and macroeconomic factors are important determinants of Saudi firms’ debt maturity structure decisions. The firm-specific determinants including leverage, profitability, size, liquidity, and asset maturity are positively related to corporate debt maturity choice. However, firms’ risk is negatively associated with debt maturity structure. Economic growth (GDP) has a positive linkage with corporate debt maturity, while the interest rate negatively impacts long-term debt maturity. The results support the matching theory, while it does not support the agency and the signaling theories. At best, this is one of the earliest studies that investigate the influence of firm-specific and macroeconomic factors on Saudi firms’ debt maturity structure decisions. JEL classification numbers: G3, G32. Keywords: Debt maturity, Firm-related factors, Macroeconomic factors, Saudi Arabia.

Does D&O insurance mislead creditors' lending decisions? Evidence from corporate debt maturity structure

AbstractThis study investigates whether directors' and officers' liability insurance (D&O insurance) misleads creditors' lending decisions by examining its effect on corporate debt maturity structure. We find that purchasing D&O insurance leads to increased corporate debt maturity, and this effect is more pronounced for firms with weaker corporate governance. These results suggest that creditors may view D&O insurance as an external monitoring tool that helps improve corporate governance. However, D&O insurance induces higher firm risk, but cannot help decrease agency costs or improve firm performance, that is, it results in more severe managerial opportunism. Our findings suggest that D&O insurance, to some extent, misguides creditors' lending decisions.

Does foreign competition affect corporate debt maturity structure? Evidence from import penetration

This paper examines an unexplored issue of how a firm's competitive environment, proxied by import penetration, affects its debt maturity structure. We document a significant, positive relationship between foreign product competition and the proportion of short-term debt. Our results are robust to a series of sensitivity tests and endogeneity concerns. Utilising large, unexpected reductions in import tariffs as exogenous shocks to foreign competition, we validate the positive effect of import penetration on short-term debt. Our results hold more strongly for firms with high information asymmetry and weak external monitoring. These findings indicate that lenders offer short-term debt to prospective borrowers when they exhibit higher information asymmetry in response to increased foreign competition. Additional tests reveal that short-term debt in a firm's financial structure, contingent upon foreign competition, encourages managers to engage in tax avoidance as an alternative funding source. Our study provides novel evidence of the consequential impact of foreign product competition in debt contracting, giving us insights into its practical implications for corporate strategies and the ramifications of trade liberalisation for policymakers.

Corporate debt maturity and investment over the business cycle

The business cycle dynamics of firms’ debt maturity vary across the firm size distribution. Small and medium-sized firms have a more pro-cyclical debt maturity than large firms. This paper explores the determinants of firms’ debt maturity, and the importance of firms’ debt maturity for their investment and leverage dynamics. To do so, it embeds a maturity choice in a model of firm investment and financing. Firms shorten debt maturity during times when default risk premiums are high and their internal funds are scarce. This behavior is consistent with both the life cycle and business cycle dynamics of firms’ debt maturity. Endogenous debt maturity helps firms to deleverage faster in response to negative shocks.

Disproportional control rights and debt maturity

Using a hand-collected sample of U.S. dual-class firms, we find that corporate debt maturity increases in insiders' disproportional control rights, which is robust to several robustness tests. This relation is more pronounced among firms more vulnerable to control disruption. Besides, firms with greater disproportional control rights issue more long-term new debt. Further analysis of the stock market reaction to new debt issuance shows that controlling insiders' preference for long-term debt benefits outside shareholders. Overall, our findings suggest that the benefits of minimizing control disruption surpass the costs of long-term debt in insider-controlled firms.

Surges and instability: The maturity shortening channel

Capital inflow surges destabilize the economy through a maturity shortening mechanism. The underlying reason is that firms have incentives to redeem their debt on demand to accommodate the potential liquidity needs of global investors, which makes international borrowing endogenously fragile. Based on a theoretical model and empirical evidence at both the firm and macro levels, our main findings are twofold. First, a significant association exists between surges and shortened corporate debt maturity, especially for firms with foreign bank relationships and higher redeployability. Second, the probability of a crisis following surges with a flattened yield curve is significantly higher than that following surges without one. Our study suggests that debt maturity is the key to understand the financial instability consequences of capital inflow bonanzas.

Implications of public corruption for local firms: Evidence from corporate debt maturity

Using political corruption conviction data from the U.S. Department of Justice, we examine the impact of local corruption on firms’ debt maturity structure while exploring both demand-side and supply-side explanations. Our results support the demand-side story and indicate that firms in high corruption areas utilize less short-term debt to mitigate liquidity and refinancing risks. Consistent with this, we find the effect is more pronounced among firms with smaller size, lower asset redeployability, and higher volatility. Our findings remain robust to the inclusion of an array of controls expected to influence debt maturity preferences as well as time, industry, and state fixed effects. Moreover, a seemingly unrelated regression approach, instrumental variables regression, propensity score matching, placebo analyses, and alternative corruption measures corroborate our findings. Altogether, our results indicate that firms alter their debt maturity choices in response to local corruption to limit refinancing risk and the uncertainty created by corrupt government officials.

Managerial ability and debt maturity

We examine whether and how managerial ability affects corporate debt maturity decisions. The demand for shorter maturity debt is expected to be higher in firms operated by high-ability managers, who possess the superior skills needed to anticipate firms’ economic prospects and communicate their private information, thereby alleviating information asymmetry and bolstering their reputation. We document that firms with high ability managers are associated with more short-term debt financing. The effect becomes stronger for firms facing severe information asymmetry problems, unconstrained firms or high quality firms. Supportive evidence is found from the analysis of short- and long-term debt issuance activity. Our findings remain robust to alternative measures of managerial ability and debt maturity choice, and are not driven by omitted variable bias, endogeneity concerns or industry group. Overall, we provide robust evidence that supports the signalling theory for debt maturity structure and contributes to the literatures on managerial ability.

Dare to play with fire? Managerial ability and the use of short-term debt

This study documents a positive relation between managerial ability and the use of short-term debt. This finding is robust to various specifications, including a difference-in-difference approach based on CEO turnovers. Able managers' preferences for short-term debt are amplified for firms with greater growth opportunities and are attenuated by firms' refinancing risk. Additional analyses shed light on the implications of high-ability managers' strategic use of short-term debt. Overall, the results presented in this study demonstrate that managers' innate ability plays a critical role in shaping corporate debt maturity structure.

Determinants of corporate debt maturity: Evidence from the consumer goods sector in Vietnam

Debt maturity structure plays an important role in enterprises’ capital structure policies, and debt maturity varies from industry to industry. The paper investigates the determinants that affect the debt maturity structure of listed firms in the consumer goods industry from 2009 to 2019. The data is collected from consumer goods companies listed on the Vietnam Stock Exchange. The feasible generalized least squares (FGLS) estimation is demonstrated to consider not only micro but also macroeconomic variables that have influenced the corporate debt maturity policy. The empirical results show that five microeconomic factors, such as capital structure, asset structure, asset liquidity, profitability, and firm size, have influenced the debt maturity and are statistically significant. Meanwhile, macroeconomic factors such as inflation rate and credit growth have significantly affected the corporate debt maturity. Finally, the paper provides some suggestions for financial managers on the optimal corporate debt maturity in the consumer goods sector and recommendations for policy-makers when implementing macroeconomic policies.

Debt maturity dispersion and the cost of bank loans

This paper examines the relation between corporate debt maturity dispersion and the pricing and terms of bank loans. Analyzing a sample of U.S. bank loans from 2002 to 2016, we find that firms with a dispersed debt maturity structure pay a lower interest rate. The rate-reduction effect is significant only for firms without a credit rating. For these firms, spreading debt maturity dates also results in lower commitment fees, fewer covenant restrictions, and less collateral in their loan contracts. The impact of debt maturity dispersion on the pricing and structure of bank loans is stronger when borrowers have higher rollover risk or when the need for monitoring is greater. Our results suggest that dispersion in debt maturity structure mitigates the agency problem associated with shareholder–creditor conflicts by reducing rollover risk and alleviating the need for monitoring, which results in borrowers receiving more favorable terms in loan contracts.

Human capital in the financial sector and corporate debt maturity

This study examines how human capital in the financial sector affects corporate debt maturity. To illustrate the mechanisms underlying the effects, we propose a theoretical framework that highlights the effects of human capital in the financial sector on mitigating the information asymmetry between financial intermediaries, households, and firms. Using the Chinese National Economic Census in 2008 and the Industrial Enterprises Database over 2011–2013, we find that the financial sector's human capital plays a significant and positive (negative) role in short-term (long-term) debt and this effect is more pronounced for firms with greater information asymmetry. Further analyses demonstrate that the baseline findings are consistent with the credit supply hypothesis. Our study indicates that human capital in the financial sector strengthens its renegotiation capacity for corporate borrowing, which is consistent with China's financial repression policy and leads to increased exposure of firms to credit and liquidity risks.

Are U.S. firms using more short-term debt?

We show that, despite the sharp but temporary decline around the financial crisis of 2007–08, corporate debt maturity has risen significantly in the last two decades, erasing much of the secular decline from the 1980–90s documented in the literature. The reversal in debt maturity trend is driven by the rise in the use of intermediate-term debt among medium and large-sized firms. The low interest rates observed in the last two decades and the decline in the demand for long-term corporate bonds partly explains the rise in intermediate-term debt.

Implications of Public Corruption for Local Firms: Evidence from Corporate Debt Maturity

Using political corruption conviction data from the U.S. Department of Justice, we examine the impact of local corruption on firms’ debt maturity structure while exploring both demand-side and supply-side explanations. Our results support the demand-side story and indicate that firms located in high corruption areas utilize less short-term debt to mitigate liquidity and refinancing risks. Consistent with this, we find the effect is more pronounced among firms with smaller size, lower asset redeployability, and higher volatility. Our findings remain robust to the inclusion of an array of controls expected to influence debt maturity preferences as well as time, industry, and state fixed effects. Moreover, a seemingly unrelated regression approach, instrumental variables regression, propensity score matching, and placebo analyses corroborate our findings. Altogether, our results indicate that firms alter their debt maturity choices in response to local corruption to limit refinancing risk and the uncertainty created by corrupt government officials.

Top executive gender, board gender diversity, and financing decisions: Evidence from debt structure choice

Gender diversity in the C-suite and the boardroom have taken on greater importance in recent years. We establish a gender-based behavioral dimension to corporate debt maturity choice. Female executives choose a significantly shorter debt maturity structure compared to their male counterparts. However, their influence on debt maturity is inversely related to the proportion of their incentive compensation. Additionally, we find a substitution effect that moderates the relationship between executive gender and debt maturity structure as board gender diversity increases. Further, we find that firms led by females benefit from higher corporate credit ratings thus showing that the greater ethical sensitivities of female top executives compensate for the refinancing risk commonly associated with shorter-term debt. Transitions from male-to-female executive(s) result in shortening of debt maturity over the post-transition period. Our results survive a battery of robustness tests, including endogeneity, and contribute at the confluence of gender-based governance and corporate financial decision-making literatures.

Factors Influencing Corporate Debt Maturity: An Empirical Study of Listed Companies in Vietnam

Factors Influencing Corporate Debt Maturity: An Empirical Study of Listed Companies in Vietnam