Corporate Debt Maturity Research Articles

The Financial Crisis and Corporate Debt Maturity

This paper shows the relevance of the financial crisis on firm- and country-level determinants on debt maturity structure for 39 countries during the period 1995-2012. Corporate debt maturity declined during the financial crisis. However, the financial crisis had a positive effect on the corporate debt maturity of smaller firms. Cross-firm and cross-country differences exerted an influence on the effect of the financial crisis on corporate debt maturity. Legal enforcement and bank concentration reduced the negative impact of the financial crisis on debt maturity in line with the efficiency of the legal system and relationship banking reducing the firm’s credit constraints following the financial crisis. We also show that the effect of the financial crisis on debt maturity increased with the decline in economic activity during the crisis.

Firm and Country Determinants of Debt Maturity. International Evidence

This paper analyses the effect of firm- and country-level determinants on debt maturity structure and how this effect varies across countries and across firm size. Results for 39 countries show that firm-level variables such as asset maturity, size, firm quality and leverage affect debt maturity structure. Institutions and banking structure also influence corporate debt maturity. While the efficiency of the legal system, protection of creditors’ rights and bank concentration show a positive relationship to debt maturity, the protection of property rights and the weight of banks in the economy have a negative effect on firm debt maturity. However, these firm- and country-level determinants vary according to firm size. The agency costs and signalling hypotheses are more relevant in explaining the debt maturity structure of large firms, while the asset maturity and tax hypotheses are more pertinent in the case of small firms. Most of the country-level determinants of debt maturity are size dependent; in particular, bank concentration has a positive influence on debt maturity only for the subsample of small firms, while the weight of banks in the economy has a negative influence for small firms.

Agency Cost, Growth Options, and Debt Maturity in the Indian Corporate Sector

The debt maturity literature has established that agency cost problems, information asymmetry, and liquidity risk are important factors which determine the corporate debt maturity structure. Using panel OLS regression methodology on a panel data of 266 firms drawn from BSE 500, this research paper investigates empirically how agency cost determines debt maturity decisions in the Indian corporate sector. The agency cost hypothesis established that agency problems caused by the conflict of interest between shareholders and bondholders can be mitigated through short-term debt maturity. Therefore, debt maturity is inversely related. The research finds that the coefficient of growth options is positive and significant as against the empirical prediction that debt maturity and growth options are inversely related. However, the positive and significant coefficient on growth options reveals the severity of agency problems in the Indian corporate sector. The research findings lead to the conclusion that debt- equity conflicts over the exercising of growth options are mitigated by not issuing short-term debt. Maturity matching, long-term debt with call and sinking fund provisions, bank debt, secured debt, and debt with covenants are the corporate borrowing strategies adopted by the Indian companies to deal with agency problems, information asymmetry, and liquidity risk.

How Tax Hypothesis Determines Debt Maturity in Indian Corporate Sector

Trade-off theory states that the optimum debt maturity is determined by a dynamic trade-off between the tax advantages of debt and deadweight cost of bankruptcy as the firms recapitalize with debt depending upon the term structure of interest rate and asset volatility. Therefore, the corporate tax rate, term structure, and asset variance jointly determine corporate debt maturity. This paper empirically examines how the tax hypothesis determines debt maturity in the Indian corporate sector using a panel data of 266 companies drawn from BSE 500 for the period 2000-2010. Our research findings unequivocally establishes that the tax rate, term structure and asset variance profoundly influence the debt maturity structure in Indian corporate sector. The statistically significant and negative coefficient on tax rate clearly indicates that optimal debt maturity is determined by the trade-off between the tax benefits of debt against the cost associated with financial distress and bankruptcy risk. The coefficient on term structure shows that in the periods of declining term structure and higher corporate tax rate, the firms maximize market value by increasing the proportion of short-term debt in the capital structure. The statistically significant but positive regression coefficient on asset variance rejects the tax hypothesis that debt maturity is inversely related to asset variance. The complex tax regime, high rate of corporate tax and dysfunctional corporate bond market have adversely affected the growth and development of the business and industry. Therefore, comprehensive reforms are required in tax code, and initiatives are to be taken for developing the corporate bond market by introducing diverse products, which can provide avenues for financing, investment, and risk diversification.

CEO Overconfidence and Corporate Debt Maturity

This paper extends our knowledge of corporate debt maturity structure by examining whether and to what extent overconfident CEOs affect maturity decisions. Consistent with a demand side story, we find that firms with overconfident CEOs tend to adopt a shorter debt maturity structure by using a higher proportion of short-term debt (due within 12 months). This behavior of overconfident CEOs is not deterred by the high liquidity risk associated with such a financing strategy. Our demand side explanation remains robust even after considering six possible alternative drivers including a competing supply side explanation (in which creditors are reluctant to extend long-term debt to overconfident CEOs).

Determinants of corporate debt maturity in South America: Do institutional quality and financial development matter?

We test whether a country's level of financial development or institutional quality (or both) has a first‐order effect on corporate debt maturity decisions on a sample of 359 non-financial firms from five South American countries over a 12‐year period. We find that there is a substantial dynamic component in the determination of a firm's debt maturity, and firms face moderate adjustment frictions toward their optimal maturities. More importantly, the level of financial development does not influence debt maturity, whereas the institutional quality of a country has a significant positive effect on the level of long-term debt in a firm's financial structure. Our results support the hypothesis that the quality of national institutions is an important determinant of corporate financing in general and of debt maturity in particular.

The determinants of corporate debt maturity structure: A case study of Pakistan

The study investigates the determinants of corporate debt maturity structure for a sample of 23 banks listed in the “Karachi Stock Exchange (KSE)”. This paper covers the six years period from 2005 to 2009. An overview of the theories related to the debt maturity structure of companies is presented in the literature review section. The practical section represents an econometric model that shows that long-term debt increases with asset maturity while decreases with company size and operating cycle. Tax rate was found to have a direct positive association with the maturity of debt in the pooled model but insignificant in the fixed effect. The impact of firm quality and leverage proved statistically insignificant. Key words: Maturity structure of debt, Karachi stock exchange, stockholder, bondholder.

Corporate Leverage, Debt Maturity and Credit Supply:The Role of Credit Default Swaps

Corporate Leverage, Debt Maturity and Credit Supply:The Role of Credit Default Swaps

Systematic Risk, Debt Maturity, and the Term Structure of Credit Spreads

We build a structural model to explain corporate debt maturity dynamics over the business cycle and their implications for the term structure of credit spreads. Longer-term debt helps lower firms' default risks while shorter-term debt reduces investors' exposures to liquidity shocks. The joint variations in default risks and liquidity frictions over the business cycle cause debt maturity to lengthen in economic expansions and shorten in recessions. The model predicts that firms with higher systematic risk exposures will choose longer debt maturity, and that this cross-sectional relation between systematic risk and debt maturity will be stronger when risk premium is high. It also shows that the pro-cyclical maturity dynamics induced by liquidity frictions can signi cantly amplify the impact of aggregate shocks on credit risk, with different effects across the term structure, and that maturity management is especially important in helping high-beta and high-leverage firms reduce the impact of a crisis event that shuts down long-term refinancing. Finally, we provide empirical evidence for the model predictions on both debt maturity and credit spreads.

The Role of Blockholders in Capital Structure

This paper examines the impact of concentrated equity ownership (blockholders) on the corporate debt maturity structure within the framework of agency theory. Using a novel and hand-collected data set from 2000 to 2015 in Australia, we find support for our hypothesis that debt maturity is a concave function of block ownership, which is likely a reflection of the conditions of the Australian capital market. Our findings contribute to empirical evidence on the monitoring effects of blockholders and the use of debt maturity to control for debt-equity and manager-equity conflicts.

National culture and corporate debt maturity

We investigate the influence of national culture on corporate debt maturity choice. Based on the framework of Williamson, we argue that culture located in social embeddedness level can shape contracting environments by serving as an informal constraint that affects human actors’ incentives and choices in market exchange. We therefore expect national culture to be related to debt maturity structure after controlling for legal, political, financial, and economic institutions. Using Hofstede’s four cultural dimensions (uncertainty avoidance, collectivism, power distance, and masculinity) as proxies for culture, and using a sample of 114,723 firm-years from 40 countries over the 1991–2006 period, we find robust evidence that firms located in countries with high uncertainty avoidance, high collectivism, high power distance, and high masculinity tend to use more short-term debt. We interpret our results as consistent with the view that national culture helps explain cross-country variations in the maturity structure of corporate debt.

National Culture and Corporate Debt Maturity

We investigate the influence of national culture on corporate debt maturity choice. Based on the framework of Williamson, we argue that culture located in social embeddedness level can shape contracting environments by serving as an informal constraint that affects human actors’ incentives and choices in market exchange. We therefore expect national culture to be related to debt maturity structure after controlling for legal, political, financial, and economic institutions. Using Hofstede’s four cultural dimensions (uncertainty avoidance, collectivism, power distance, and masculinity) as proxies for culture, and using a sample of 114,723 firm-years from 40 countries over the 1991 to 2006 period, we find robust evidence that firms located in countries with high uncertainty avoidance, high collectivism, high power distance, and high masculinity tend to use more short-term debt. We interpret our results as consistent with the view that national culture helps explain cross-country variations in the maturity structure of corporate debt.

Managerial overconfidence and debt maturity structure of firms

PurposeThe purpose of this paper is to empirically analyze the effects of managerial overconfidence on debt maturity structure decisions in terms of liquidity risk and asset match in Chinese listed companies.Design/methodology/approachCombining data from CSMAR with some default data collected by hand, this paper selects age, tenure, education, education background and whether the board chair and CEO positions are consolidated in Chinese listed companies as proxies of managerial overconfidence. Thus, the authors acquired needed and credible empirical data.FindingsIt was found that, the younger the CEO, the shorter the tenure, the lower the education, having economics or management education and being chairman concurrently, CEOs have stronger managerial overconfidence. Thus, corporate debt maturity structure is more weakly correlated with debt ratio and asset structure.Research limitations/implicationsThe findings in this study suggest that managerial irrationality, especially overconfidence, does have an effect on the financing decisions of firms.Originality/valueThis is the first paper to analyze the effects of managerial overconfidence on debt maturity structure decisions in terms of liquidity risk and asset match. The findings inspire firm risk management policies from managerial overconfidence.

Corporate Debt Maturity and Monitoring by Institutional Investors

I provide novel evidence that institutional investors, by influencing the maturity structure of corporate debt, play an active monitoring role. First, I find that institutional ownership is positively related to short-term debt and this relationship is not only statistically significant, but also economically sizeable. Second, I show that longer investment horizons and absence of potential business relations with the firm provide investors with stronger incentives to monitor managers by increasing the proportion of short-term debt in the company. This monitoring role is corroborated by robustness tests which reveal an increased probability of issuing short-term debt following a change in investor characteristics.

Determinants of corporate debt maturity in Latin America

Purpose – The purpose of this paper is to test the main theories of corporate debt maturity in a multi‐country framework, in an attempt to understand country‐specific constraints.Design/methodology/approach – Dynamic panel data analysis estimated by the generalized method of moments, techniques that account properly for cross‐section and time series variation allowing for dynamic effects.Findings – There is a substantial dynamic component in the determination of a firm's maturity structure; firms face moderate adjustment costs towards its optimal maturity, and the determinants of maturity structure and their effects are similar between Latin American countries and the USA; and there is a partial empirical support for each of the theoretical hypotheses tested.Research limitations/implications – Firm ownership, accounting standards, financial market depth, and the degree of supervision on financial reporting may vary across countries, which may affect the quality and consistency of some variables.Practical ...

Market timing and the corporate debt maturity choice: the case of Tunisian and French firms

This paper aims to investigate the determinants of corporate debt maturity structure using a panel of Tunisian and French listed firms. Specifically, we focus on the relevance of market timing considerations on the choice between short- and long-term debts. We find that market timing has no significant impact on the debt maturity choice. We document also that debt maturity is positively related to asset maturity and leverage. The portion of long-term debt decreases with growth opportunities, profitability and size.

An integrated model of capital structure to study the differences in the speed of adjustment to target corporate debt maturity among developed countries

In this paper, we propose an integrated model of capital structure to study the partial adjustment process to the optimal long term debt ratio. In our analysis, we consider the characteristics of the institutional environment as a factor that influences such adjustment. We use a sample of quoted firms from Germany, Denmark, Spain, Italy, USA, Australia, Belgium, UK and France for the period 1996–2008. The key findings are that the firms follow optimal long-term debt ratios. Such optimal ratios are determined by firm characteristics identified in the trade-off, pecking order and market timing theories and by the country institutional environment. We observe that in those countries with lower cost of adjustment, essentially in those where banks are the main source of funds, firms can reach their target debt ratio in half the time needed by those countries with higher adjustment costs.

Corporate debt maturity choice in emerging financial markets

This paper investigates the determinants of liability maturity choice in emerging markets using a unique panel of 4500 Ukrainian firms during the period 2000–2006. Our estimates confirm the importance of agency costs, liquidity, signaling, and taxes for the liability term structure of firms operating in a transition economy. Firm creditworthiness and access to long-term financing at bond markets are the key drivers of corporate debt structure. This study provides strong evidence that constrained and unconstrained companies react differently on liquidity risk and, hence, pursue different debt maturity strategies.

Determinants of Corporate Debt Maturity in South America: Do Institutional Quality and Financial Development Matter?

We test whether a country’s level of financial development or institutional quality (or both) have a first order effect on corporate debt maturity decisions on a sample of 359 non-financial firms from five South American countries over a 12 year period. We find that there is a substantial dynamic component in the determination of a firm’s debt maturity, and firms face moderate adjustment frictions toward their optimal maturities. More importantly, the level of financial development does not influence debt maturity, whereas the institutional quality of a country has a significant positive effect on the level of long-term debt in a firm’s financial structure. Our results support the hypothesis that the quality of national institutions is an important determinant of corporate financing in general and of debt maturity in particular.

Industry Structure and Corporate Debt Maturity

AbstractWe examine how industry competition affects firms’ choice of short‐term debt. We find that the percentage of short‐term debt is positively related to industry concentration at low levels of concentration, and inversely related to industry concentration at higher levels of concentration. This nonlinear relation is stronger in industries where firms are either more homogeneous or compete more aggressively. Moreover, we find that firms with shorter‐maturity debt are less aggressive than their rivals in the product market. The overall evidence suggests that although financial contracts alleviate agency problems, they exacerbate the risk of predation.