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Corporate debt maturity and investment over the business cycle

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  • Poeschl, Johannes

Abstract

The business cycle dynamics of firms’ debt maturity vary across the firm size distribution. Small and medium-sized firms have a more pro-cyclical debt maturity than large firms. This paper explores the determinants of firms’ debt maturity, and the importance of firms’ debt maturity for their investment and leverage dynamics. To do so, it embeds a maturity choice in a model of firm investment and financing. Firms shorten debt maturity during times when default risk premiums are high and their internal funds are scarce. This behavior is consistent with both the life cycle and business cycle dynamics of firms’ debt maturity. Endogenous debt maturity helps firms to deleverage faster in response to negative shocks.

Suggested Citation

  • Poeschl, Johannes, 2023. "Corporate debt maturity and investment over the business cycle," European Economic Review, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:eecrev:v:152:y:2023:i:c:s0014292122002288
    DOI: 10.1016/j.euroecorev.2022.104348
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    1. Chen, Yan & Sun, Ruiqi, 2023. "Corporate financialization and the long-term use of short-term debt: Evidence from China," Finance Research Letters, Elsevier, vol. 58(PD).

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    More about this item

    Keywords

    Endogenous debt maturity; Endogenous default; Firm investment; Firm life cycle; Business cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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