Corporate Financing of Maturing Long-Term Debt

Abstract:     
We test the pecking order theory by examining how firms finance maturing long-term debt. This allows us to resolve the issues of debt capacity and endogeneity of financing deficit, to examine the role of internal financing, and to generate evidence regarding the order in which different sources of financing are used. We find that firms use internal funds before they issue new debt to refinance maturing long-term debt. Firms with more cash on hand are less likely to issue new debt to refinance. On average, each marginal dollar of maturing long-term debt is fully financed with new debt issuance.

Keywords: capital structure, pecking order theory, corporate financing, debt financing, maturing debt

JEL Classifications: G32

Working Paper Series