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Belief disagreement and debt maturity structure

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  • Leng, Dong
  • Wei, Xu
  • Zhuo, Yilin

Abstract

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.

Suggested Citation

  • Leng, Dong & Wei, Xu & Zhuo, Yilin, 2024. "Belief disagreement and debt maturity structure," Economics Letters, Elsevier, vol. 243(C).
    • Handle: RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524003963
    DOI: 10.1016/j.econlet.2024.111912
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    References listed on IDEAS

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    More about this item

    Keywords

    Belief disagreement; Debt maturity; Maturity mismatch;
    All these keywords.

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance

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