Debt maturity and firm performance: evidence from a quasi-natural experiment

Asymmetric information between lenders and borrowers may lead to a suboptimal provision of long term credit by banks; this may have negative effects on firms' investments and, as a consequence, future growth. In this paper we analyze a policy intervention -- Mutuo di Riassetto (MR) -- launched by an Italian regional government, aimed at increasing firms' debt maturity. Using a combination of difference-in-differences and instrumental variable approaches, we find that the MR program had a temporary impact on debt maturity by raising firms' share of long-term debt only for the first two years after the start of the program. The policy did not have relevant effects on performance: firms registered a short-term increase in intangible assets and (to a lesser extent) profitability, but did not display any permanent rise in terms of sales, tangible assets, labor cost, or credit access. We also find that firms involved in the MR program observed a significant rise in the probability to default.