Debt Maturity Research Articles

Belief disagreement and debt maturity structure

This paper examines how investors’ belief disagreement affects the firm’s debt maturity choice. We find that in the presence of belief disagreement, the firm prefers short-term debt to long-term debt. This is because short-term debt is less risky and can attract more optimistic investors, which raises the debt price and reduces the cost of debt financing. Our result is stronger when long-term debt is more risky compared to short-term debt and investors’ belief dispersion is higher.

Stock market liberalisation and debt maturity structure: Evidence from the Shanghai‐Hong Kong Stock Connect

Stock market liberalisation and debt maturity structure: Evidence from the Shanghai‐Hong Kong Stock Connect

Mispricing and debt maturity structure

This paper examines the relationship between mispricing and debt maturity structures, using Chinese A-share listed companies from 2015 – 2022 as research samples. We find that the mispricing results in the reduction of debt maturity, driven by the overvaluation predominantly. Information asymmetry in overvalued firms intensifies this effect, but can be mitigated by reducing agency costs. Default risk and investment efficiency further moderate this relationship, being more pronounced in enterprises of private and stringent financing constraints.

Corporate debt, repayment and maturity structure, and monetary policy transmission

Abstract This article develops a stylized New Keynesian Dynamic Stochastic General Equilibrium model and explores the function of the repayment and maturity structure of corporate debt in the monetary policy transmission mechanism. The results demonstrate that following an unanticipated policy tightening, long-term floating-rate debt exacerbates the credit channel, causing a greater decline in investment and output due to the increased debt burden relative to long-term fixed rate debt. In response to the downward trajectory of the output, the central bank pursues a lower interest rate path, thereby inflation remains at a relatively elevated level. Thus, the monetary authority is less effective in stabilizing inflation in economies with long-term floating rates compared to those with fixed rates. Prolonging the maturity of floating-rate debt aggravates these effects and renders firms even more susceptible to adverse shocks.

Impact of debt maturity and cash holding on investment decisions in Vietnamese companies

The study used data from 520 listed firms between 2004 and 2020 to ascertain the relationship between debt maturity, cash holding, and investment decisions in Vietnamese enterprises. The use of more conservative tactics results from the rise in agency costs. Increased cash holding encouraged businesses to employ internal resources to reduce external financing risks, favorably impacting investment decisions. The negative link between investment decisions and intangible assets indicates increased external funding costs. A high tax shield benefited the investment since it freed up financial flows for productive assets. The robustness test revealed that cash holding positively corresponds with investment decisions in consumer and technology enterprises and that technology firms are incredibly responsive to changes in debt maturity.

Firms’ financing and debt maturity choices: An empirical analysis from the perspective of asset value dynamics

AbstractWe examine empirically the relationship between the dynamics of firm value and their financing and debt maturity choices. Theoretical studies show that the actual drift of firm value is a key determinant of firms’ leverage and debt maturity by incorporating the conflicts between undiversified insiders (managers) and well‐diversified outside investors. We empirically analyze firms’ incremental leverage and debt maturity choice important determinants of firms’ leverage and debt maturity, we find that the drift, or the expected return of total assets, does affect the firms’ choices of incremental leverage and debt maturity, as predicted by theoretical studies. Our results provide the evidence that the divergence of interests between undiversified managers and well‐diversified shareholders has significant impact on firms’ financing policies that are generally controlled by managers, and the resulting leverage and maturity choices may deviate from maximizing shareholders’ value.

Uncertainty in banking and debt financing of firms in Vietnam.

This study explores the effects of banking uncertainty on firms' debt financing. Employing data from 2007 to 2022 of Vietnam-a bank-based economy, we document that banking uncertainty negatively impacts corporate debt. The impact firmly holds across various debt maturities and sources, with the most predominant driver witnessed in bank debt. We also investigate the potential underlying mechanism linking banking uncertainty to debt financing, thereby validating the working of three crucial channels, including increased costs of debt, substitution of trade credit, and contractions in firm investment. Furthermore, conducting extended analysis, we find that debt financing exhibits more pronounced reactions to banking uncertainty for firms with closer ties to banks or during macroeconomic shocks, as captured by the financial crisis and the COVID-19 pandemic. Our findings survive after robustness checks by alternative measurement, static and dynamic econometric models, and endogeneity controls.

Public data accessibility and corporate maturity mismatch: Evidence from China

As the importance of public data to the real economy continues to be recognized, this study explores public data accessibility as a determinant of corporate maturity mismatch between investment and financing. Exploiting the staggered establishment of public data open platforms (PDOPs) across different cities in China, we observe a significant reduction in local firms' maturity mismatch following the establishment of PDOPs. The results remain robust even after conducting a battery of robustness tests, including placebo tests, matching analysis, as well as controlling for the influence of other major concurrent reforms and utilizing alternative measures for corporate maturity mismatch. Mechanism analysis indicates that the establishment of PDOPs contributes to an increase in the scale of long-term loans and an extension of the debt maturity structure. This suggests that enhanced public data accessibility effectively strengthens banks' information discernment capabilities. Cross-sectional analysis indicates that the effects are more pronounced in samples of private enterprises, companies with high levels of earnings management, fewer analysts covering, lower collateral values, and a higher proportion of local subsidiaries. Additionally, the economic consequence analysis reveals that the establishment of PDOPs ultimately helps to reduce corporate default risk. Finally, this study finds no evidence of potential spatial spillover effects from the establishment of PDOPs. This study offers a new perspective on understanding changes in corporate maturity mismatch, providing significant policy implications for preventing and mitigating financial risks.

Environmental Regulation and Access to Credit

AbstractWe show that climate priorities codified in regulations significantly impact firms’ access to credit, especially long‐term credit, an important financial resource required for achieving business viability and sustainability goals. Following the implementation of a prominent cap‐and‐trade programme aimed at controlling nitrogen oxides (NOx) in the United States (the NOx Budget Trading Program, NBP), manufacturers experienced decreased debt maturity structures, driven by reduced access to long‐maturity debt, but did not alter their use of short‐term debt or trade credit. The NBP's effect on long‐term credit is more pronounced for firms with higher degrees of electricity intensity, financial constraints, information frictions or rollover risk. It ultimately led to deteriorating firm value and operating performance. Increased energy costs and elevated operating leverage explain firms’ reduced access to long‐term credit. Our findings highlight the potential unintended consequences of policy instruments designed to boost a specific aspect of sustainability and the complex nature of managing corporate financial and sustainability goals.

Debt maturity in Spanish small business startups

This article studies debt maturity in startup firms. Specifically, it analyzes whether the maturity of the debt of these firms is different from that of older firms. It also studies whether these possible differences are maintained during periods of financial crisis. To this end, we use a sample of small Spanish firms during the period 2011-2020. The results indicate that new or recently created firms have debt with shorter maturities. This could be explained by the greater agency problems and information asymmetries that these firms face. Moreover, we observe that this result is maintained during periods of financial crisis. Este artículo estudia el vencimiento de la deuda de empresas de nueva o reciente creación. En concreto, se analiza si el vencimiento de la deuda de estas empresas es diferente al de las empresas de mayor edad. Además, también se estudia si estas posibles diferencias se mantienen durante periodos de crisis financiera. Utilizando una muestra de pequeñas empresas españolas durante el período 2011-2020, los resultados indican que las empresas nuevas o de reciente creación tienen deuda con un menor vencimiento, lo que podría ser explicado por los mayores problemas de agencia e información asimétrica que tienen estas empresas. Además, se observa que este resultado se mantiene en periodos de crisis financiera.

Debt Maturity Structure and Earning Management: Evidence from Emerging Markets

This study aims to examine the non-linear impact of debt maturity structure on earnings management (EM) in international data settings. Panel dataset of 5129 non-financial listed firms from 9 Asian Emerging Economies (AEE) is analyzed covering the period from 2000 to 2021. EM is measured using Accrual-Based Earnings Management (AEM) and Real Activity-Based Earnings Management (REM). Debt is categorized into Total Financial Debt (TFD), Short-Term Debt (STD), and Long-Term Debt (LTD). Based on fixed effect regression model, results clearly reveal presence of non-linear relationship between debt maturities and EM. The study provides the evidence that firms of AEEs are engaged in accrual as well as real earnings management to report their earnings.TFD and STD have positive where as LTD has negative impact on AEM at low debt level. In the similar vein, TFD and STD have negative where as LTD has no impact on REM. The findings also demonstrate substitution of REM for AEM at varying debt levels. This study offer valuable insight for investors, creditors, policy makers, auditors and researchers.

Debt and Duration: Why You Should Rethink Your Mix of Short-term Debt

Financing of a business involves several choices and tradeoffs: a key choice that CFOs often make is: “How much debt should we take on to finance our business?” A related question, often neglected is: “What kind of debt?” All forms of lending are not the same and one key dimension of debt is its maturity period. Short-term debt and long-term debt have different impacts on the profitability and valuation of a firm. Do investors demand higher returns on equity if the composition of debt includes more of certain kind of debt? The question has long bothered corporate finance as well as scholars. Recent research by Friewald, Nagler, & Wagner has uncovered an insight that should help CFOs, as it found a clear link between the level of debt, the maturity (ranging from short to long term) of debt and equity returns.1 The essence of their finding is: “… Equity returns increase in short-term leverage but not in long-term leverage”. Meaning that your equity investors expect higher returns on capital, the more your mix of short-term debt increases. In this essay, we explain why this happens, and we outline takeaways for managers of corporate finance. We illustrate how the nature of the industry in which your business operates, impacts your debt financing – both the level, as well as the mix of short- and long-term debt

The contraction of Chinese shadow banking and corporate investment behavior: Evidence from the background of the “New Rules on asset management”

Employing the exogenous scenario of the “New Rules on Asset Management” in April 2018, this paper tries to explore the impact of the contraction of Chinese shadow banking on corporate investment behavior. This paper finds that the regulation leads to a 18.3% decrease in capital expenditure for firms relying on shadow banking system prior to the shock. Then, this paper tests three underlying mechanisms, which include the decrease of corporate borrowing, the increase of corporate financing constraints and the reduction of debt maturity. This paper also provides the empirical evidence that the implementation of the “New Rules on Asset Management” optimizes the allocation of capital across firms.

Local government debts and corporate bond spreads: Evidence from China

Using a comprehensive dataset of Chinese corporate bonds that existed during 2011–2018, we find a significant positive relationship between local government debts and the credit spreads of local firms. By matching their debt maturity, we find that long-term government debts have an obvious effect on the spreads of long-term corporate bonds. Moreover, with the expansion of local government debts, local firms reduce their debt financing in response to the rising borrowing cost. These findings show that a crowding out effect does exist between local government debts and local corporate bonds. The effect is attributable to the decrease in the capital supply in the credit market, the weakened implicit guarantee from the government, and the increasing investment cost for local firms, which are all correlated with the expansion of local government debts.

How ESG performance affects maturity mismatches between investment and financing: Evidence from Chinese A-share listed companies

This study investigates the relationship between environment, society, and governance (ESG) performance and maturity mismatches between investment and financing based on unbalanced panel data from Chinese listed companies. The results suggest that ESG performance significantly reduces the potential for maturity mismatch between corporate investment and financing and that the ESG activities of Chinese enterprises are consistent with the principles of responsible investment. Specifically, society and governance performance significantly reduces maturity mismatch, while environmental performance exerts an insignificant effect. Enterprises with high ESG performance prefer long-term debt financing structures, and they also have increased trade credit and endogenous financing. In addition, investment efficiency and innovative investment are beneficial for ESG performance to promote the long-term transformation of debt maturity structures. Finally, ESG performance is more effective in reducing maturity mismatch caused by environmental policy and COVID-19.

Debt dispersion and corporate liquidity

AbstractCash holdings are significantly lower for firms with dispersed debt maturity, and this finding is robust to entropy balancing and allowing for the simultaneous selection of dispersion and cash holdings. The relation is strongest for firms with shorter debt maturity and firms that rely on precautionary cash, such as financially constrained firms and firms with volatile cash flows. Markets place a lower value on the cash of firms with high or increasing dispersion, and these firms retain less cash. Collectively, the evidence implies that firms can hedge rollover risk with dispersed debt maturity as an alternative to holding costly cash.

The Influence of Accounting Conservatism, Ownership Concentration, and Debt Maturity on Investment Efficiency

This study aims to examine the influence of accounting conservatism, ownership concentration, and debt maturity on investment efficiency. This research uses quantitative methods with multiple linear regression models using the SPSS program. The data used in this study are the annual financial statements of companies on the Indonesia Stock Exchange. The population in this study were 122 non-classical consumer companies listed on the Indonesia Stock Exchange. After purposive sampling, the final sample consisted of 42 companies so that the total sample was 126 data. The results of multiple linear regression testing show support for the hypotheses of this study: (1) accounting conservatism has a significant effect on investment efficiency, (2) ownership concentration has a significant effect on investment efficiency, and (3) debt maturity has no effect on investment efficiency. In conclusion, these findings highlight the importance of accounting conservatism and ownership concentration in influencing investment efficiency. However, debt maturity does not appear to have a significant impact on investment efficiency. These insights can guide policymakers and practitioners in making informed decisions to enhance investment practices and optimize resource allocation.

Digitalization and firms' debt maturity: Do financial constraints and uncertainty matter?

Despite the significant growth of information and communication technology adoption in industrial activity, there is still limited evidence discussing the role of industrial digitalization in firms' debt structures. Therefore, the purpose of this study is to investigate the impact of digitalization on debt structure by employing a sample of Chinese manufacturing companies from 2001 to 2019. The results show that digitalization expands the proportion of firms' long-term debt. Further analysis reveals that digital technology superiority contributes to lowering bankruptcy costs, enabling firms to maintain longer debt maturity to manage liquidity and refinancing risks effectively. This research also finds that financially constrained firms derive greater advantages from digital transformation. Furthermore, the uncertainty risks appear to reduce the positive impacts of digitalization on firms' debt maturity.

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.

Female CEOs and SME’s financing decision: evidence from firm-level data

PurposeThis study investigates the relationship between female CEOs and SMEs’ financing decisions. The study also examined the moderating role of ownership structure (female, foreign, and state ownership) in female CEO-SMEs’ financing decisions.Design/methodology/approachThe study has applied Generalized Least Square (GLS) and Binomial Logistic Regression. The study has used firm-level data from 2,700 Small and Medium Enterprises (SMEs) in the Chinese economy.FindingsThe results suggest that female CEOs use debt financing. However, the financing decision of female CEOs varies if we account for female ownership, foreign ownership, state ownership, firm association with big firms, and the industry in which the firm operates. This study also provides robust evidence that female CEOs utilize debt financing under certain conditions and that female CEOs prefer long-term debt financing to short-term debt financing when considering debt maturity choices.Originality/valueRecent studies report a negative relationship between female CEOs and financing decisions based on the rationale that females are risk-averse and choose less risky financing compared to their male counterparts. This study posits new evidence that female CEO financing decisions are not always risk averse if we consider female ownership, foreign ownership, state ownership, firm association with big firms, and the industry in which the firm operates. Thus, we contribute to the corporate governance literature, and this study implies a corporate financing policy.