Debt Maturity Structure Research Articles

Corporate Debt Maturity Structure: The Role of Firm Level and Institutional Determinants in Selected African Countries

An appropriate debt maturity structure is essential for firms to enable them align asset structure to liabilities to prevent a mismatch. This study investigates the role of firm-level and institutional variables on debt maturity structure in selected African countries. Using panel generalised method of moment that addresses endogeneity problem; our findings reveal a dynamic process of adjustment to optimal debt maturity structure. Furthermore, firm-level variables (leverage, asset structure and firm size) provide support for the contracting cost, signalling and matching principle theories of debt maturity structure. Results of institutional variables suggest that better developed institutions promote long-term debt maturity structures.

Institutional Equity Investors and Debt Maturity Structure: A Clientele Effect

This paper provides empirical evidence of a clientele effect between institutional holdings and debt maturity structure. Using a new measure of debt maturity that captures the refinancing and underinvestment risks associated with the timing of cash flows, I find that institutional equity holders prefer to invest in firms with long debt maturity, and hence low refinancing risk, despite the agency-cost benefits associated with short term debt. I show that this relation is caused by the effect of refinancing risk on institutional holdings using a semi-natural experiment in which the 2007 credit crisis acts as a plausibly exogenous shock to firms’ abilities to secure external financing. Firms with high refinancing risk experience a drop in institutional holdings around this event, while institutional holdings increase in a propensity-score-matched sample of control firms. This effect is particularly strong in firms of intermediate quality, firms with moderately high leverage, and in firms with relatively good governance ex ante.

Corporate Pensions and the Maturity Structure of Debt

AbstractIn this article, we investigate the role of pension obligations, the most significant off‐balance‐sheet item, in determining corporate debt maturity and spreads. We begin by showing a significant and robust positive relationship between pension liabilities and corporate short‐term debt ratio. We also find that more pension obligations cause a significant increase in the cost of debt, but this effect is mitigated by short‐maturity debt. Overall, our study shows that short‐term debt can reduce asymmetric information costs related to pensions.

A Concealed Wrongdoing of Corporate Philanthropy: Evidence from China

The paper is trying to examine the changes between rational and irrational charitable donation of Chinese listed corporations under the background that an increasing number of Chinese listed corporations register charity foundations in recent years. Considering corporate income tax ratio as a proxy for tax preference, whether products are exposed to consumers directly or indirectly, as well as gross profit margin, debt financing scale and debt maturity structure as proxies for the reputation effect and strategic advantage, the indicators of rational charitable donation consist of the five factors mentioned above; The indicator of irrational charitable donation is disposal accrued profits calculated by Extended Jones Model. By the regression of data of charitable donations from Chinese A listed corporations during the year from 2008 to 2013, findings show that the behavior of rational charitable donation is weakened gradually, while, in contrast, the irrational charitable donation is strengthened. The listed corporations have strong motivation to transfer profits through registering and establishing charity foundations, which is a new tendency of transferring interests.

Country‐level governance quality, ownership concentration, and debt maturity: A comparative study of Brazil and Chile

AbstractManuscript typeEmpiricalResearch Question/IssueThis study investigates the interplay between country‐level governance quality and the capital structure choice at the firm level in Brazil and Chile. We examine the association between a firm's ownership concentration and its debt maturity structure and whether country‐level governance quality influences this association.Research Findings/InsightsUsing a large firm‐level dataset from Brazil and Chile for the period 2008–2013, we find a positive association between low ownership concentration and debt maturity. However, this association becomes negative when the largest shareholder has high ownership concentration. This result suggests that long‐term debt and ownership concentration act as substitute monitoring mechanisms. Moreover, debt maturity is inversely related to our aggregated index of country‐level governance quality, suggesting that in countries with governance systems that effectively protect debt holders, firms with high benefits of control (high ownership concentration) will use debt with shorter repayment periods in order to benefit from frequent monitoring by debt holders. Overall, our results support the view that financial markets tend to pressure firms with high benefits of control or greater agency conflict to make a tradeoff between the benefits of control and the cost and maturity structure of debt financing.Theoretical/Academic ImplicationsThis study contributes to the research on comparative corporate governance and capital structure. We also respond to recent calls to bridge the gap between under‐ and over‐socialized views of corporate governance by examining the interplay between firm‐ and country‐level governance variables. Our findings suggest a substitution effect between monitoring by equity holders and by debt holders, and that country‐level governance quality exerts a disciplinary influence over a firm's choice of debt maturity structure.Practitioner/Policy ImplicationsInvestors seeking to enter emerging markets such as Brazil and Chile can benefit from considering national governance factors that enhance debt holders’ external monitoring effectiveness. Because our findings show the importance of considering and improving the quality of country‐level governance, they are also useful for policy makers aiming to reform corporate governance practices in emerging markets.

The impacts of Net Stable Funding Ratio requirement on Banks’ choices of debt maturity

Abstract In this paper, we study the impacts of the Net Stable Funding Ratio (NSFR) requirement on banks’ choices of debt maturity and asset structures, with consequences for banks’ profitability and social welfare. We develop a model in which the manager of a bank determines both debt maturity structure (short-term vs. long-term debt) and asset composition (cash vs. risky assets). To address the incongruence of goals between the bank manager and the bank stakeholders, in our model we assume that the manager receives only a proportion of the bank’s profit in her pay schedule. We demonstrate that the optimal choices of the manager regarding debt maturity and asset structure lead to socially inefficient (second-best) outcomes because the manager internalizes only part of the social benefit. We then study the implications of the NSFR requirement on the manager’s choices and demonstrate that the NSFR requirement can enhance social welfare and reach an efficient (first-best) outcome, if a sufficiently low weight of short-term debt as available stable funding is required by regulation. Further, we find that under the same conditions the NSFR requirement reduces banks’ use of short-term financing and thus increases the probability of banks’ survival and profits from the ex ante point of view, while it decreases banks’ profits from the ex pos t point of view, since it reduces the threshold for banks’ survival. Our main results have some interesting empirical implications: under certain conditions, the NSFR requirement may reduce both bank failures and banks’ observed profits.

International reserves and the maturity of external debt

This paper studies how the level of international reserves affects the maturity structure of external debt. We show in an illustrative theoretical model that reserves lengthen the maturity of external debt via a flattening of the yield curve. Using data of 66 emerging and developing countries and applying different econometric approaches, we find robust evidence that reserves increase the share of long-term in total external debt. Results hold for private and public external debt individually. Taking reserves and their effect on the debt maturity structure together, they reinforce financial stability.

The Debt Maturity Structure of Nigerian Quoted Firms

Perhaps, the most familiar idea underlying debt maturity choice is the maturity-matching hypothesis wherein liabilities’ maturities correlate with assets’ maturities. However, the maturity-matching hypothesis does not provide a comprehensive explanation for many empirical patterns of firm behavior. This study investigates the determinants of debt maturity choice using a panel of 50 Nigerian quoted firms between 1999 and 2014. Using simple correlation analysis and dynamic panel data regression techniques, the study documents the following findings. First, the marginal tax rate exerts positive influence on the use of short-term borrowing perhaps because firms exploit potential tax benefits of borrowing through the short-term channel, consistent with the tax hypothesis. Second, small firms with fewer tangible assets tend to utilize more short-term borrowing. This effect is more pronounced in unique industries and for dividend payers. Third, growth opportunities exert a weak positive influence on the use of short-term borrowing thus implying that short-term debt may play minor role in ameliorating the agency cost of underinvestment. However, firms with more volatile earnings and less liquid assets utilize less short-term borrowing. Finally, macroeconomic variables exert significant influences on the debt maturity choice with monetary policy and government debt wielding positive effects while private credit, term spread and economic growth have inverse effects. The findings generate important implications along four non-mutually exclusive views of debt maturity such as signaling, contracting-costs, tax and liquidity hypotheses. The study recommends corporate debt and macroeconomic policies that promote prudent use of debt maturities.

Time-varying managerial overconfidence and corporate debt maturity structure

ABSTRACTWe examine the impact of managerial overconfidence on corporate debt maturity. We build upon the argument that managerial overconfidence is likely to mitigate the underinvestment problem, which is often the major concern for long-term debt investors. Within this context, we hypothesise that managerial overconfidence increases debt maturity. Our empirical evidence, based on time-varying measures of overconfidence derived from computational linguistic analysis and directors’ dealings in their own companies’ shares, supports this hypothesis. Specifically, we find that the changes in both first person singular pronouns and optimistic tone are positively related to the change in debt maturity. Moreover, we find that the insider trading-based overconfidence of CEO, who is most likely to influence investment decision and thus the underinvestment problem, has a stronger impact on debt maturity than the overconfidence of other directors (e.g. CFO). Overall, our study provides initial evidence for a positive overconfidence-debt maturity relation via overconfidence mitigating the agency cost of long-term debt.

The long-term horizon of family firms in M&A: The impact on research investments and debt maturity structure

Despite family business is the most widespread ownership structure worldwide, there is a lack of evidence on the impact of external growth strategies on their capital structure. Although most researches showed that the risk of losing control leads family firms to a lower level of debt, this article sheds new light on debt maturity structure and innovation investments when family firms embrace an acquisition path. In particular, I argue that family firms will use bank debt to a lower extent than nonfamily firms when they embrace an external growth strategy and, as a consequence, they are more likely to avoid cuts in research investments and focus more on long term debt. These hypotheses are consistent with agency theory arguments, as family principals exercise a more effective monitoring due to the larger ownership stake and the desire to pass the company on the offspring in profitable conditions. By having access to a panel data, I analyse acquisitions carried out in the period 2000-2013 by all Italian companies with turnover exceeding 50 million Euros, and the results support the long term perspective of family firms. In particular, family firms will use less bank debt to finance acquisitions, avoiding cutting research investments and relying on a more balanced debt maturity structure.

Corporate Pensions and the Maturity Structure of Debt

In this paper, we investigate the role of pension obligations, the most significant off-balance-sheet item, in determining corporate debt maturity and spreads. We begin by showing a significant and robust positive relationship between pension liabilities and corporate short-term debt ratio. We also find that more pension obligations cause a significant increase in the cost of debt, but this effect is mitigated by short-maturity debt. Overall, our study shows that short-term debt can reduce asymmetric information costs related to pensions.

The Maturity Structure of Debt in the Run-Up to Default

When firms roll over bonds of different maturity, their debt-maturity structure can feature both shorter and longer maturity in bad times. We link these debt-maturity patterns to the firms' fundamentals, assuming earnings are deterministically declining but the same firm is subject to a growth option. Larger growth options induce equilibria in which the fraction of outstanding short-term debt falls in bad times---resulting in a procyclical rollover policy---whereby firms engineer later default via longer maturity. By contrast, the fraction of newly issued short-term debt is (weakly) procyclical in all paths. That is, more short-term debt is issued in good than in bad times.

Hiring a High-quality Auditor and debt maturity structure: Evidence from Iranian firms

Hiring a High-quality Auditor and debt maturity structure: Evidence from Iranian firms

The Relationship between Corporate and Government Debt Maturity in Europe

Focusing on the European case, in this paper we investigate the “gap-filling” explanation for corporate debt maturity choices in a multi-country setting. We argue and demonstrate empirically that companies adjust their debt maturity in response to supply shocks in the share of long-term government debt occurring both at home as well as in other European countries as a whole. Consistent with expectations, the latter association is stronger in particular for smaller countries and since the introduction of the Economic and Monetary Union (EMU). The magnitude of the moderating role of size for the EMU sub-sample is fully consistent with our prediction for countries with a common currency and monetary policy. Our results have relevant implications for the ability of individual European governments to use their debt maturity structure as a policy tool.

CEO Inside Debt and Firm's Maturity Structure of Debt

This study examines managerial compensation incentives and its impact on firm’s financial decisions. Specifically, we examine how CEO’s inside-debt based compensation incentives (pension benefits and other deferred compensation) influences firm’s debt maturity structure. We examine this relationship in the context of the hypothesis that CEO’s inside-debt based incentives exposes managers to similar kind of default risk as any other unsecured risky debt, which may change their risk preferences that may have an influence on firm’s financial decisions. Empirical evidence of this study supports a view that when manager’s ex-ante incentives for substituting risky assets over safe assets is low (that is, higher CEO-debt based incentives as compared to equity-based compensation incentives), creditors allow firms maintain long-maturity debt since high inside debt-based incentives can substitute for the monitoring incentive mechanism of short-term debt.

Corporate tax aggressiveness and the maturity structure of debt

We investigate the association between tax aggressiveness and corporate debt maturity, and we find strong evidence that shorter debt maturity is more prevalent for tax aggressive firms. The results survive numerous robustness tests, including controlling for compensation-induced incentives for risk-taking, firm and CEO effects, changes regressions, and instrumental variables estimation. The results suggest that lenders view tax aggressiveness as a risky activity and therefore restrict the maturity structure of debt to provide a monitoring mechanism for debt contracts with tax-aggressive borrowers. We conclude that tax aggressiveness has a meaningful influence on debt contracting.

How do managerial incentives affect the maturity structure of corporate public debt?

I examine the relation between managerial ownership and the maturity structure of corporate public debt by using a sample of newly issued Japanese corporate bonds. Firms with higher managerial ownership issue shorter maturity bonds. In addition, firms with higher managerial ownership have lower credit ratings and experience higher yield spreads. Finally, firms with higher managerial ownership exhibit higher firm performance and show a preference for risk-taking activities. Overall, my findings support the view that bondholders are concerned about wealth transfers from bondholders to shareholders through risk-taking activities and require firms with higher managerial ownership to issue shorter maturity bonds.

The effect of franchising on debt maturity in the US restaurant industry

With franchising as an efficient means of growth and expansion, this study aims to explore how franchising can influence corporate debt maturity structure in the US restaurant industry. The purpose of this study is to investigate (1) the effect of franchising on debt maturity structure, (2) the relationship between leverage and short-term debt, and (3) the moderating effect of franchising on the relationship between short debt maturity and leverage in the US restaurant industry. Analyzing panel data on publicly traded US restaurant firms, this study showed that franchising could be an important determinant of the maturity structure of corporate debt. Empirical evidence suggests that restaurant firms pursuing growth and expansion through franchising should take into consideration the effect of franchising on the debt maturity structure when making capital structure decisions.

Debt maturity and ownership structure

L’objectif de notre recherche est d’etudier le lien entre la structure de l’actionnariat et la maturite de la dette. L’etude est conduite sur un echantillon de societes francaises de l’indice Euronext sur la periode 2011-2013. Nos resultats montrent que le controle par la dette a court terme peut, dans une certaine mesure, se substituer aux mecanismes traditionnels de gouvernance. Tout d’abord, la concentration de l’actionnariat mesuree par les deux premiers actionnaires est associee positivement a la maturite de la dette jusqu’au seuil de detention des droits de vote proche de 56 %, puis negativement au-dela de ce seuil (relation en forme de U inverse). Ensuite, la nature de l’actionnariat, a savoir l’actionnariat familial, ainsi que l’actionnariat dirigeant, sont egalement associees positivement a la maturite de la dette jusqu’au seuil respectif de detention des droits de vote proche de 44 %, et 15 %, puis negativement au-dela de ces seuils. L’actionnariat financier est associe positivement a la maturite de la dette.

Firm and country specific determinants of capital structure in Sub Saharan Africa

Purpose The purpose of this paper is to examine the effects of firm- and country-specific factors on the dynamics of capital structure for a new data set of firms in Sub-Saharan Africa. Design/methodology/approach Panel data estimation techniques are carried out on a set of 412 firms from 12 countries within Sub-Saharan Africa. Findings The results show that firm- and country-specific factors play an important role in the choice of debt for firms in Sub-Saharan Africa. First, firm profitability is the most common significant predictor of capital structure for firms in Sub-Saharan Africa. The significance and magnitude of profitability coefficients is more pronounced in countries with the least developed banking and stock markets and the weakest legal systems. Second, the rule of law in Nigeria and Zimbabwe provides avenues for firms in these countries to increase their debt maturity structures. The choice of debt for firms in Ghana is significantly influenced by the strength of the legal rights, the time to enforce a contract and the cost of contract enforcement. Third, capital structure adjustment speeds in all the sampled countries are relatively slow, possibly due to the market imperfections associated with the underdeveloped financial markets of Sub-Saharan Africa. Lastly, firms in the most developed stock markets of Sub-Saharan Africa tend to have lower mean debt ratios and faster capital structure adjustment speeds. Similarly, firms in countries with strong legal mechanisms tend to have higher mean long-term debt ratios and faster capital structure adjustment speeds. Originality/value This paper explores the influence of firm-level and country-specific factors on the dynamics of capital structure for a new data set that was previously ignored in the literature.