Mismatched! An Empirical Examination of Traditional Debt Maturity Theories in Australian Firms

Abstract:     
We examine the determinants of debt maturity in the Australian capital market. The validity of traditional maturity theories is empirically examined using the Top 400 firms listed on the Australian Stock Exchange for the period 1996-2005. We find that Australian firms consider transaction costs and the effect of information asymmetries when determining debt maturity. Interestingly we find little support for the asset-matching principle, which is often cited as the most common determinant of maturity policy. We also find that firms consider the correlation between earnings and interest rates when determining maturity, although it is likely that the emergence of interest rate derivatives has reversed the role played by this correlation. Finally we examine the changes in maturity factors over a recent period of significant personal and corporate taxation changes (2000-2001). After the period of taxation changes, the role played by agency costs and asset maturity appear to increase in importance.

Keywords: Debt Maturity, Capital Structure, Imperfect Markets

JEL Classifications: G32

Working Paper Series