Debt Maturity Research Articles

Effect of Working Capital, Debt Maturity, Sales, and Tangibility on Investment Efficiency

The research objective is to analyze variables such as working capital, debt maturity, sales and tangibility that affect investment efficiency. Investment is the activity of placing funds in one or more types of assets for a certain period to earn income. Factors that reflect company performance are the financial statements presented in the annual report. Underinvestment occurs when an investment company requires the use of large amounts of debt. Companies with overinvestment are companies that are in the mature stage with slow growth rates, and high cash flow. In this study the approach used is using quantitative methods. Then analyzed partial and multiple regression. The data used is secondary data. The independent variables used are working capital, debt maturity, sales, and tangibility. The dependent variable used is investment efficiency. The targeted output is to analyze whether the variables of working capital, debt maturity, sales and tangibility affect investment efficiency, so that with this research it is hoped that investment can be efficient.

Misallocation of debt and aggregate productivity

We propose an accounting framework that maps the dispersion of borrowing costs along the debt maturity structure to the misallocation of productive resources. Specifically, we decompose the effects of credit misallocation into two distinct channels: limited access to debt finance (the scale effect) and distortion in the composition of debt across maturities (the composition effect). Our estimates suggest that an efficient allocation of debt could increase TFP by approximately 14.4% in the US manufacturing sector, of which roughly 10% is attributable to the composition of debt. Reducing inefficiencies in the composition of debt would result in TFP losses due to access and composition of factor inputs being reduced by 9.7% and 0.4%, respectively.

Effects of monetary policy uncertainty on debt financing: Evidence from Korean heterogeneous firms

This study investigates the combined effects of monetary policy uncertainty (MPU) and firm characteristics on Korean heterogeneous firms' capital structures in the short- and long-terms. The results reveal that while both MPU and firm characteristics play a key role in short-term debt financing, they appear to be less significant in long-term debt financing. Such asymmetric responses are mainly attributed to different business strategies and debt maturities. Firms make decisions on long-term debt financing based on their internal plans rather than interest rates or MPU. In contrast, firms can choose the appropriate timing to refinance or issue debts at a more favorable interest rate when financing through short-term debts. We find that the marginal effects of firm characteristics on short-term debt ratios vary with the level of MPU. Furthermore, the marginal effects of MPU differ across heterogeneous firms because of distinct firm characteristics. However, an increase in MPU leads to a decline in short-term debt ratios over the sample period. Our results provide some insights into the design of monetary policies to manage highly leveraged firms especially with short-term debts.

Factors Influence on Debt Maturity Structure (In Manufacturing Companies Registered on the IDX for the 2019 - 2021 Period)

This study examines the effectProfit Management, Company Size, Asset Maturity, Leverage on Debt Maturity Structure(Manufacturing Companies Registered on the IDX for the 2019 - 2021 period). The research population is pThe population for this research is all publicly listed companies on the IDX for the 2019-2021 period. The samples were taken based on purposive sampling, which means the criteria used are as follows: (a) Manufacturing companies listed on the IDX for 2019-2021, (b) Financial reports are accessible, (c) The required variable data is available.Furthermore, to perform data analysis, multiple linear regression through the use of SPSS software as a tool is used in this study. The research results show that hhypothesis 1 earnings management (DA) has a sig value of 0.027<0.05 and β1 -0.170<0 then H1 is accepted, meaning that earnings management has a negative effect on the structure of debt maturity. Hypothesis 2 firm size (SIZE) has a sig value of 0.000<0.05 and β2 0.018>0, so H2 is accepted, meaning that firm size has a positive influence on the structure of debt maturity. Hypothesis 3: asset maturity (ASMAT) has a sig value of 0.000<0.05 and β3 0.528>0, so H3 is accepted, meaning that asset maturity has a positive influence on the debt maturity structure. Hypothesis 4 leverage (DAR) has a sig value of 0.510> 0.05, so H4 is rejected, meaning that leverage has no effect on the structure of debt maturity.

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.

Retracted] Debt Maturity Structure and Firm Life Cycle: Empirical Evidence from Asean Countries

Retracted] Debt Maturity Structure and Firm Life Cycle: Empirical Evidence from Asean Countries

The impact of the global financial crisis and the European sovereign debt crisis on the capital structure of firms in Europe: do SMEs, and listed firms respond the same?

This study examines the evolution of the capital structure of European firms during the global financial crisis and European debt crisis. We compare the experiences of SMEs, listed firms and private firms in different industries and investigate the role of country and institutional factors in affecting capital structure. We find that SMEs, private firms, and non-listed firms experience lower declines in leverage relative to large firms during the global financial crisis and the European debt crisis. During these crises’ periods, SMEs experience steeper declines in debt maturity, which suggests reliance on short term debt that carries high roll over risks. This behaviour is protracted for firms in the agriculture industry. Both the global financial crisis and EU debt crisis have asymmetric effects on leverage, long term debt issuance and debt maturity across different industries, and across firms of different sizes. Moreover, in countries with more developed financial systems, stronger frameworks for insolvency, resolving firm insolvency, and strong systems for shareholder suits, and director liability, SMEs experience much lower reduction in leverage and debt maturity. This finding suggests that institutional factors help attenuate adverse capital supply shocks.

How do industry tournament incentives affect firm debt maturity?

Our study investigates the effect of external industry tournament incentives on debt maturity structure. Prior research shows that industry tournament incentives motivate managers to employ more risky strategies. Recognizing this stronger tendency for risk-taking, creditors may shorten debt maturity and subject managers to more frequent scrutiny by debt markets. Consistent with this notion, our results show that stronger industry tournament incentives lead to significantly more short-term debt. This effect is more pronounced in firms with low credit quality, in areas with a high density of firms from the same industry, and in industries with more CEO positions.

Can at-the-Market Offerings Affect REIT Debt Maturity Choice?

This study examines the differences in debt maturity choice between Real Estate Investment Trusts (REITs) with At-the-Market (ATM) offerings and those without, as well as the subsequent changes in REIT debt maturity following the adoption of ATM programs. We find that ATM REITs consistently maintain higher levels of long-term debt than non-ATM REITs, even after implementing ATM offerings. It suggests that the capital raised through ATM offerings is not primarily utilized to reduce long-term debt. Additionally, the study highlights that small REITs experience a significant increase in short-term debt when actively employing ATM offerings. This outcome indicates that ATM programs offer smaller REITs the necessary financial flexibility to raise funds and address short-term debt obligations.

Debt Maturity and Institutions: Does Creditor Protection Matter?

This study aims to investigate the relationship between creditor protection and the debt maturity structure of corporations in the Gulf Cooperation Council (GCC) countries. The GCC countries enjoy large GDPs, growing capital markets, especially the Islamic bonds (Sukuk) market, and negligible tax environments. Nonetheless, the GCC countries’ financial systems are still dominated by banks, and their private investments are held by concentrated investors. The study utilizes firm-level financial data and country-level institutional data obtained from the World Bank Governance Indicators and Doing Business databases and applies the two-stage least square estimator to test its hypotheses. The findings indicate that stronger regulatory effectiveness is associated with long debt maturities, while better creditor protection is associated with short debt maturities. The latter finding suggests that managers and owners have incentives to utilize short-term debt in economies characterized by stronger liquidation and insolvency rules to avoid the loss of control in the case of a firm default. This finding has policy implications in terms of the importance of considering the dual influence of institutional reforms on the supply of and demand for long-term capital.

On a lender of last resort with a central bank and a stability Fund

We explore the complementarity between a central bank and a financial stability Fund in stabilizing sovereign debt markets. The central bank pursuing its mandate can intervene with public sector purchasing programs, buying sovereign debt in the secondary market, provided that the debt is safe. The sovereign sells its debt to private lenders, through market auctions. Furthermore, it has access to a long-term state-contingent contract with a Fund: a country-specific debt-and-insurance contract that accounts for no-default and no-over-lending constraints. The Fund needs to guarantee gross-financial-needs and no-over-lending. We show that these constraints endogenously determine the ‘optimal debt maturity’ structure that minimizes the Required Fund Capacity (RFC) to make all sovereign debt safe. However, the Fund may have limited absorption capacity and fall short of its RFC. The central bank may be able to cover the difference, in which case there is perfect complementarity and the joint institutions act as an effective ‘lender of last resort’. We calibrate our model to the Italian economy and find that with a Fund contract its ‘optimal debt maturity’ is 2.9 years with an RFC of 90% of GDP, which is above what the European Stability Mechanism (ESM) could reasonably absorb, but may be feasible with an ECB Transmission Protection Instrument (TPI) intervention. In contrast, the average maturity of Italian sovereign debt has been circa 6.2 years, with a needed absorption capacity of around 105% of GDP, which may call for a maturity restructuring to ease the activation of TPI.

The moderating role of CEO overconfidence on debt maturity decisions: evidence from the MENA region

Purpose This study aims to analyze how cultural variations impact the relationship between long-term debt use and managerial overconfidence. Investigate into how the relationship between growth prospects and the utilization of long-term debt is moderated by managerial overconfidence. In addition, the research explores the moderating effect of managerial overconfidence on cash flow levels. Design/methodology/approach The study used long-term debt as the dependent variable and used generalized method of moments–instrumental variables regression analysis to examine data from 356 firms across 11 Middle East and North Africa (MENA) countries and 5 industries between 2013 and 2021. Findings CEO overconfidence moderately boosts the link between long-term debt maturity and growth potential, particularly for firms with limited internal funding. Cultural factors, such as masculinity and uncertainty avoidance, play a significant role in moderating the relationship between managerial overconfidence and debt maturity choices. Practical implications To understand the impact of managerial overconfidence on a company’s debt maturity decision, it is essential for boards and shareholders to consider and monitor the CEO’s behavioral traits, particularly for growing companies. Regulators and policymakers must also be wary of the risk of internal control weakening due to overconfident managers, especially in MENA markets. Originality/value The authors’ contribution to the literature lies in exploring how managerial overconfidence moderates the agency conflict between shareholders and debtholders in MENA region firms, which has received minimal attention in previous studies. This study expands the knowledge of the impact of managerial overconfidence on emerging economies and provides evidence that national culture plays a vital role in determining debt financing decisions.

A normative argument towards the independence of public debt management

We explore the links between credit expansion, inflation, and inflation expectations, and show that active public debt management can trigger a non-interest rate channel of credit expansion. This creates incentives for the government to use debt management for promoting non-debt management goals, thus, choosing debt maturity structure that differs from its optimal. Through a theoretical monetary policy game, we show that it is welfare improving to delegate public debt management to an independent office separate from the fiscal authority.

Demand trade-off between PLSs and markups in the presence of a conventional banking relationship: The case of Moroccan companies

Theoretical explanations based on information asymmetry constitute the dominant paradigm of the near disappearance of PLSs (profit and loss sharing). This assumption implicitly implies a hypothesis on the power of contractual choice exclusively monopolized by Islamic banks. The theoretical positioning in this study to explain the arbitrage between PLSs and markups is based on a lack of demand. In this sense, this paper attempts to verify the demand trade-off of Moroccan companies between PLSs and markups. A logistic regression was used to establish several findings. The evidence suggests that past banking relationships with conventional banks and debt maturity both favor the commercialization of markups. On the other hand, financial quality of firms has no direct impact on the choice between PLSs and markups. This assertion implies that it is incorrect to assume that sole entrepreneurs undertaking high-risk projects choose to be funded by PLSs. Combining that with the fact that companies that agree to be funded by PLSs agree to share profits, private information and decision-making power, it can be said that PLSs can have a good chance of thriving in Morocco if Islamic banks provide a favorable climate for their marketing.

Life Cycle Stages and Debt Maturity in Brazilian Listed Companies

We have analyzed the association between firms’ life cycle stages (LCSs) and their debt maturity (DM). This paper deepens the discussion on capital structure from the perspective of the LCSs’ dynamic effect associated with DM. The sample was composed by secondary data from 370 (non-financial) Brazilian listed companies in the period from 2010 to 2019, gathered quarterly. The data were analyzed through descriptive statistics, tests of differences between means and regression analysis from panel data. The results showed that the DM presents no association with LCS, following an inverted U-shape. It has been observed that the maturity stage had a positive effect on the DM, however, as companies move towards the shake-out and decline stages, DM experiences successive reductions. The findings are relevant for providing insights for future research. In addition, they have the potential to contribute to managers, board members, credit committees, capital providers in general, risk management process, and resource allocation.

Financial Development and Firm Leverage in Pakistan: Conventional and Islamic perspective

The purpose of this study is to examine the impact of Islamic finance vs conventional finance development on firms’ leverage and debt maturity in Pakistan. We extract the annual data for the period 2010 to 2020. The final sample comprises 325 firms, after excluding financial firms, listed in Pakistan Stock Exchange (PSE). We use OLS and Fixed-Effects regression to estimate the impact of Islamic and conventional finance development on firm leverage and debt maturity. Our findings hold using battery of robustness check. We demonstrate that stock market development has a negative impact on leverage while conventional bank development is positively linked with leverage. Further, we find that overall Islamic finance development (Islamic bank and Sukuk market) is positively associated with leverage and debt maturity, in contrast, conventional finance development is inversely linked with debt maturity. Collectively, our results support the importance of Islamic finance supply-side factors on firms’ capital structure decisions. Our findings require the attention of regulatory bodies for financial development in Pakistan.

The capital maintenance regime matters for creditors

Relying on an unbalanced panel of 25,211 observations of Polish unlisted companies for the period 2005–2018, we employ panel data analysis to investigate the role of the capital maintenance principle in securing creditors' interests. We document a persistently higher level of indebtedness among firms that adhere to the capital maintenance regime. Although the strength of the relationship is contingent on debt maturity, capital maintenance is found to be significant for both adjusting creditors, who can adjust the terms of the loan contract correspondingly to the credit risk and non-adjusting creditors. Unlimited liability is shown to eliminate the need to maintain legal capital, thus demonstrating the notable role of legal capital in safeguarding creditors’ interests in cooperation with limited liability companies. In contrast to the viewpoint of advocates for abandoning legal capital requirements, we show that legal capital remains an important mechanism for ensuring compatibility in incentives between shareholders and creditors.

Literature Review: Mediation Effects of Debt Maturity on Good Corporate Governance in Enhancing Financial Performance

This study proposes a research model to investigate the mediating effect of debt maturity on the relationship between good corporate governance (GCG) and financial performance. The qualitative approach employed is a systematic literature review (SLR) technique, analyzing 11 articles selected from 142 related ones found on the Google Scholar database within the 2010-2021 research range based on inclusion and exclusion criteria. Debt maturity was found to play a crucial role in shaping the effectiveness of GCG mechanisms in managing financial risks and improving financial performance. The proposed research model has implications for researchers and practitioners, providing a basis for future empirical studies exploring the interplay between GCG, debt maturity, and financial performance. For practitioners, it offers a theoretical framework for developing policies and practices promoting effective GCG and optimal debt maturity structures to enhance financial performance. The findings inform the development of policies and procedures that promote good corporate governance and optimal debt maturity structures, leading to improved financial performance. Additionally, the proposed research model may be applied to other contexts, contributing to a better understanding of the role of debt maturity in the relationship between GCG and financial performance.

Investor sentiment and firm capital structure

We provide novel evidence of the role of investor sentiment in determining firms' capital structure decisions from three perspectives: leverage ratio, debt maturity and leverage target adjustment. We find that when investor sentiment is high, firms increase their leverage ratios, supporting our contention that high investor sentiment increases firms' debt capacity and facilitates the use of an aggressive leverage policy. Debt maturity is shorter in high sentiment periods, implying that firms are confident about future earnings and use shorter debt maturity to signal their financial solvency. Leverage target adjustment is slower in low sentiment periods, indicating higher costs of external finance. Furthermore, the sentiment-leverage relationship sensitivity is greater for financially constrained firms. Our extended analysis determines that leverage-increasing firms generate lower stock returns subsequent to a period of high sentiment, offering practical insights into the economic consequences of increasing leverage in high sentiment periods on corporate value for investors. Our research advances the understanding of the impact of investor sentiment on firms' financing decisions and stock returns.

The Firm Life Cycle and Debt Maturity Structure: Evidence from ASEAN Countries

This study aims to examine the firm’s debt maturity structure policy across the firm life cycle stage in five ASEAN countries, namely Indonesia, Malaysia, Singapore, Thailand and Vietnam. The Firm life cycle stages are classified based on its cashflow pattern into four stages, namely introduction, growth, mature, and decline. The study was conducted using 2769 samples of non-financial listed companies in these five ASEAN countries in the period 2007-2020. The data analysis method used is a panel data model with a fixed effect. The results of the study from the research conducted show that the company's life cycle in the introduction and growth stages chooses to use long-term debt compared to companies in the mature and decline stages. It’s possible that during introduction and growth stages, firms are overloaded with many investment opportunities that they want to invest. Internal funds might not be enough for them and they opt to acquire external debt such as long-term debt. DOI: 10.26905/jkdp.v27i2.9958