The role of blockholders in the corporate debt maturity structure

Debt Maturity and Institutions: Does Creditor Protection Matter?

“…This finding indicates that firms with a large set of growth opportunities use more short-term debt financing. This finding is consistent with the view that firms subject to large agency costs of debt resolve these costs by choosing debt maturities that expire before the growth opportunity to reduce the underinvestment problem (Myers 1977), and is consistent with empirical evidence (Pan and Tan 2019;Pour and Lasfer 2019;Zheng et al 2012). In terms of the variable Asset-Maturity, the results show that it is significantly and positively related to Maturity at the 1% and 5% levels in the random effects and the G2SLS estimations, respectively, which indicates that firms with longer asset maturities use longer debt maturities.…”

“…Likewise, short-term debt discourages shareholders from taking suboptimal risky projects that transfer wealth from debtholders to themselves because the value of short-term debt is less sensitive to asset volatility (Leland and Toft 1996). This view predicts that firms subject to larger agency costs over the financing of their growth opportunities have incentives to finance those opportunities with short debt maturities (Barnea et al 1980;Diamond and He 2014;Myers 1977), which is supported by empirical findings (Pan and Tan 2019;Pour and Lasfer 2019;Zheng et al 2012). The second implication of the agency view is suggested by Myers (1977), who predicts that matching the maturities of assets and debt reduces the firm disinvestment incentive.…”