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The Determinants of Debt Maturity at Issuance: A System-Based Model

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  • Elyasiani, Elyas
  • Guo, Lin
  • Tang, Liang

Abstract

We examine the determinants of corporate debt maturity while taking into account the interdependent relation between maturity and leverage. We do this by estimating a simultaneous-equations model on debt maturity and leverage for a sample of bond-issuing firms. To compare with previous studies, we also estimate a single-equation model on debt maturity using OLS. We define debt maturity as either the maturity of bonds at issuance (incremental approach), or the percentage of a firm's total debt that matures in more than three years (balance-sheet approach). Corroborating the findings of many previous studies, our single-equation OLS results support the underinvestment hypothesis purporting that firms with greater growth opportunities have shorter-term debt. However, under the simultaneous-equations model, the negative relation between a firm's debt maturity and its growth opportunities ceases to hold. Instead, it is the leverage decision that is influenced by growth opportunities. This suggests that existing models may overestimate the effect of growth opportunities on debt maturity. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • Elyasiani, Elyas & Guo, Lin & Tang, Liang, 2002. "The Determinants of Debt Maturity at Issuance: A System-Based Model," Review of Quantitative Finance and Accounting, Springer, vol. 19(4), pages 351-377, December.
    • Handle: RePEc:kap:rqfnac:v:19:y:2002:i:4:p:351-77
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    Cited by:

    1. Yomna Abdulla & Viet Anh Dang & Arif Khurshed, 2016. "Debt maturity and initial public offerings," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 1129-1165, November.
    2. Onur Kemal Tosun & Lemma W. Senbet, 2020. "Does internal board monitoring affect debt maturity?," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 205-245, January.
    3. Wu, Julia Yonghua & Opare, Solomon & Bhuiyan, Md. Borhan Uddin & Habib, Ahsan, 2022. "Determinants and consequences of debt maturity structure: A systematic review of the international literature," International Review of Financial Analysis, Elsevier, vol. 84(C).
    4. Matthias Nnadi & Vachiraporn Surichamorn & Ranadeva Jayasekera & Yacine Belghitar, 2022. "Empirical analysis of debt maturity, cash holdings and firm investment in developing economies," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(3), pages 3345-3372, July.

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