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

Posted: 25 Jan 2008 Last revised: 19 Dec 2010

See all articles by Jamie Alcock

Jamie Alcock

The University of Sydney Business School; Centre for International Finance and Regulation (CIFR)

Frank Finn

University of Queensland - Business School

Kelvin Jui Keng Tan

University of Queensland - Business School; Financial Research Network (FIRN)

Date Written: February 29, 2008

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 Classification: G32

Suggested Citation

Alcock, Jamie and Finn, Frank and Tan, Kelvin Jui Keng, Mismatched! An Empirical Examination of Traditional Debt Maturity Theories in Australian Firms (February 29, 2008). Second Singapore International Conference on Finance 2008, Available at SSRN: https://ssrn.com/abstract=1083324

Jamie Alcock

The University of Sydney Business School ( email )

Cnr. of Codrington and Rose Streets
Sydney, NSW 2006
Australia

Centre for International Finance and Regulation (CIFR) ( email )

Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

Frank Finn

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Kelvin Jui Keng Tan (Contact Author)

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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