Is Debt Maturity Determined by Asymmetric Information about Short-Term or Long-Term Earnings?

2002 ◽  
Author(s):  
Petra Danisevska
Keyword(s):  
Asymmetric Information ◽  
Debt Maturity ◽  
Short Term

Debt Maturity and Asymmetric Information: Evidence from Default Risk Changes

2013 ◽  
Vol 48 (3) ◽  
pp. 789-817 ◽  
Author(s):  
Vidhan K. Goyal ◽  
Wei Wang
Keyword(s):  
Asymmetric Information ◽  
Private Information ◽  
Default Risk ◽  
Important Determinant ◽  
Debt Maturity ◽  
Short Term ◽  
Information Models ◽  
Asset Volatility ◽  
Distance To Default

AbstractAsymmetric information models suggest that a borrower’s choice of debt maturity depends on its private information about its default probabilities, that is, borrowers with favorable information prefer short-term debt while those with unfavorable information prefer long-term debt. We test this implication by tracing the evolution of debt issuers’ default risk following debt issuances. We find that short-term debt issuance leads to a decline inborrowers’ asset volatility and an increase in their distance to default. The opposite is true for long-term debt issues. The results suggest that borrowers’ private information about their default risk is an important determinant of their debt maturity choices.

Labor lawsuits and debt maturity

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Omer Unsal
Keyword(s):  
Chief Executive ◽  
Debt Maturity ◽  
Employee Relations ◽  
Short Term ◽  
Content Type ◽  
Negative Effect ◽  
Debt Market ◽  
Legal Fees

Purpose This paper aims to investigate how firms’ relationships with employees define their debt maturity. The authors empirically test the role of employee litigations in influencing firms’ choice of short-term versus long-term debt. The authors study employee relations by analyzing the importance of the workplace environment on capital structure. Design/methodology/approach The author’s test hypotheses using a sample of US publicly traded firms between 2000 and 2017, including 3,056 unique firms with 4,256 unique chief executive officer, adopting the fixed effect panel model. Findings The authors document that employee litigations have a significant negative effect on the use of short-term debt and a significant positive affect on long-term debt. Employee litigations, along with legal fees, outcomes and charging parties, matter the most in explaining debt maturity. In addition, frequently sued firms abandon the short-term debt market and use less shareholders’ equity to finance their operations while relying more on the longer debt market. Originality/value To the best of the authors’ knowledge, this is the first study to examine the role of employee mistreatment in debt maturity choice. The study extends the lawsuit and finance literature by examining unique, hand-collected data sets of employee lawsuits, allegations, violations, settlements, charging parties, case outcomes and case durations.

scholarly journals Capital Structure and Firms’ Performance: Evidence from Vietnam’s Stock Exchange

2015 ◽  
Vol 7 (12) ◽  
pp. 1 ◽  
Author(s):  
Tristan Nguyen ◽  
Huy-Cuong Nguyen
Keyword(s):  
Capital Structure ◽  
Stock Exchange ◽  
Debt Maturity ◽  
Management Process ◽  
Short Term ◽  
Fixed Assets ◽  
Two Factors ◽  
The Impact ◽  
Very High

<p>Our paper examines what impact capital structure has on firms’ performance in selected firms listed on HCMC Stock Exchange. The data is collected from 147 listed companies during the period from 2006 to 2014. The study not only checks the impact the level of leverage has on firms’ performance, which is found to be negative in this study, but it also uses the short-term and long-term debt ratios to see the effect of debt maturity. However, there is no difference whether it is short-term or long-term. Tangibility is found to be negative with a very high proportion on average. With the suggestion that companies might invest too much in fixed assets and there is a lack of efficiency, this could be the alert for firms to improve their management process. Size and growth are found to be positive, since larger firms have lower costs of bankruptcy and higher growth rates associate with higher performance. Moreover, the study also adds the effects of industry and macroeconomics, and the result shows a correlation between the two factors and firms’ performance.</p>

On the Signalling Role of Debt Maturity

2006 ◽  
Vol 6 (1) ◽  
Author(s):  
Robert Lensink ◽  
Thi Thu Tra Pham
Keyword(s):  
Commercial Bank ◽  
Debt Maturity ◽  
Short Term ◽  
Debt Contracts ◽  
High Quality ◽  
Model Simulations ◽  
Secured Debt ◽  
Unsecured Debt

This paper focuses on the signalling role of debt maturity. The main novelty of the paper is that it analyzes a setting in which high quality firms use collateral as a complementary device along with debt maturity to signal their superiority. Model simulations suggest a non-monotonic relationship between firm quality and debt maturity, in which high quality firms have both long-term secured debt and short-term secured or non-secured debt and low quality firms have long-term unsecured debt. We provide some empirical evidence for this result based on debt contracts of the Asia Commercial Bank.

scholarly journals The Effects of Corporate Financing Decisions on Firm Value in Bursa Malaysia

2019 ◽  
Vol 11 (3) ◽  
pp. 127 ◽  
Author(s):  
Chaleeda ◽  
Md. Aminul Islam ◽  
Tunku Salha Tunku Ahmad ◽  
Anas Najeeb Mosa Ghazalat
Keyword(s):  
Firm Value ◽  
Primary Objective ◽  
Free Cash Flow ◽  
Debt Maturity ◽  
Short Term ◽  
Corporate Financing ◽  
Financing Decisions ◽  
Total Debt ◽  
The Cost

The primary objective of shareholders and financial managers is generally stated to be the maximization of shareholders&rsquo; wealth by increasing the firm value. This research was undertaken to investigate the effect of corporate financing decisions on firm value&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; . The research has been carried out using the panel data procedure for a sample of 256 firms from 9 sectors listed on Bursa Malaysia during the period 2000-2015. The study uses Tobin&rsquo;s Q representing firm value for the dependent variable. The corporate financing was measured by leverage (short-term debt to total assets, long-term debt to total assets, total debt to total assets and total debt to total equity) and debt maturity (long-term debt to total debt). Short-term debt to total assets and long-term debt to total assets has a positive significant relationship to firm value. This finding is consistent with the view that leverage and dividends mitigate agency costs of free cash flow problems, therefore, increasing firm value. Total debt to total assets affects firm value negatively. This proves that although there are benefits of debts, there is also the cost of debts. The cost of debt financing arises from the increase in the probability of bankruptcy. Firm value does not depend on the length of debt maturity.

Tax Clienteles and Debt Maturity

2000 ◽  
Vol 22 (2) ◽  
pp. 22-39 ◽  
Author(s):  
Elaine Harwood ◽  
Gil B. Manzon
Keyword(s):  
Capital Structure ◽  
Debt Maturity ◽  
Tax Rates ◽  
Short Term ◽  
Maturity Structure ◽  
Tax Shields ◽  
Marginal Tax Rates ◽  
Outstanding Debt ◽  
Larger Sample

We examine the proposition that the expected value of future interest tax shields affects firms' preferences for long-term vs. short-term debt. We extend prior work that has focused on incremental debt issuances (Newberry and Novack 1999; Guedes and Opler 1996) by examining the maturity structure reflected in the portfolio of firms' outstanding debt at year-end. Thus, our study tests a wider range of capital structure activities and includes a much larger sample of firms than examined in prior studies. Our results indicate that firms with high marginal tax rates use more long-term debt than do firms with low marginal tax rates. These findings are consistent with the existence of tax clienteles for financing with debt of different maturities.

scholarly journals Influence of Debt Maturity on Firm Performance: An International Comparison

2017 ◽  
Vol 9 (5) ◽  
pp. 106
Author(s):  
Ben Said Hatem
Keyword(s):  
Firm Performance ◽  
Capital Structure ◽  
International Comparison ◽  
Debt Maturity ◽  
Debt Ratio ◽  
Short Term ◽  
Total Debt ◽  
Negative Effect ◽  
Positive Effect

This paper manipulate the effect of capital structure maturity on firm performance. Debt maturity is measured by three ratios (the long term capital structure, the short term capital structure and total debt ratio). We test a sample consisting of 116 firms from Malaysia and 92 firms from Mexico over a period of 7 years from 2005 to 2011. We could not find evidence on the effect of the long term debt ratio on firm performance. However, firms with higher short term capital structure ratio, are less profitable. This result is valid for firms from Malaysia and Mexico. The results of total debt ratio rare mixed. We conclude to a positive effect for firms of Malaysia and a negative effect for firms of Mexico.

scholarly journals Debt and financial performance of SMEs: The missing role of debt maturity structure.

2013 ◽  
Vol 10 (3) ◽  
pp. 354-365 ◽  
Author(s):  
Hayam Wahba
Keyword(s):  
Financial Performance ◽  
Opposite Effect ◽  
Debt Maturity ◽  
Random Effects Model ◽  
Short Term ◽  
Debt Maturity Structure ◽  
Maturity Structure ◽  
The Relationship

This paper focuses on an important issue, which has generally received less attention in SMEs literature, being the effect of debt maturity structure on financial performance. The random effects model, as a panel data technique, is used to examine the relationship between debt and various measures of financial performance. The results reveal that it is not the level of leverage that determines financial performance, but rather the debt maturity structure. Specifically, the findings demonstrate that short-term debt and long-term debt have an opposite effect on financial performance and therefore tend to cancel out. This is the first study, to the best of knowledge, which offers empirical evidence regarding debt maturity structure not only in SMEs context, but also from an Egyptian perspective.

The Effect of Taxes on Corporate Debt Maturity Decisions: An Analysis of Public and Private Bond Offerings

1999 ◽  
Vol 21 (2) ◽  
pp. 1-16 ◽  
Author(s):  
Kaye J. Newberry ◽  
Garth F. Novack
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Debt Maturity ◽  
Early Years ◽  
Corporate Bond ◽  
Corporate Debt ◽  
Short Term ◽  
Public And Private ◽  
Theoretical Predictions

This paper tests theoretical predictions of a relation between taxes and corporate debt maturity decisions using bond offerings (public and private) during 1988–1995. Consistent with predictions of a tax clientele effect, a positive relation between firms' marginal tax rates and the maturity term of their corporate bond offerings is found. Also consistent with tax predictions of a term structure effect, the results indicate that firms issue corporate bonds with longer maturities in periods characterized by large term premiums (for long- vs. short-term interest rates). In periods with large term premiums, long-term bonds accelerate interest deductions into the early years of the bond obligation (with the present value of pre-tax interest payments being no more for the long-term bond than for successive short-term bond issues). These findings extend prior research on determinants of financing choices by providing some of the first empirical evidence that taxes are related to corporate debt maturity decisions.

scholarly journals An International Comparison of Capital Structure and Debt Maturity Choices

2011 ◽  
Vol 47 (1) ◽  
pp. 23-56 ◽  
Author(s):  
Joseph P. H. Fan ◽  
Sheridan Titman ◽  
Garry Twite
Keyword(s):  
Developing Countries ◽  
Capital Structure ◽  
International Comparison ◽  
Deposit Insurance ◽  
Institutional Environment ◽  
Debt Maturity ◽  
Short Term ◽  
Tax System

AbstractThis study examines how the institutional environment influences capital structure and debt maturity choices of firms in 39 developed and developing countries. We find that a country’s legal and tax system, corruption, and the preferences of capital suppliers explain a significant portion of the variation in leverage and debt maturity ratios. Specifically, firms in more corrupt countries and those with weaker laws tend to use more debt, especially short-term debt; explicit bankruptcy codes and deposit insurance are associated with higher leverage and more long-term debt. More debt is used in countries where there is a greater tax gain from leverage.

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