Corporate Financing of Maturing Long-Term Debt

40 Pages Posted: 27 May 2008 Last revised: 30 Apr 2010

See all articles by Armen Hovakimian

Armen Hovakimian

Baruch College - Zicklin School of Business

Milos Vulanovic

EDHEC Business School

Date Written: April 30, 2010

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 Classification: G32

Suggested Citation

Hovakimian, Armen and Vulanovic, Milos, Corporate Financing of Maturing Long-Term Debt (April 30, 2010). Available at SSRN: https://ssrn.com/abstract=1137972 or http://dx.doi.org/10.2139/ssrn.1137972

Armen Hovakimian (Contact Author)

Baruch College - Zicklin School of Business ( email )

One Bernard Baruch Way
Box B10-225
New York, NY 10010
United States
646-312-3490 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://zicklin.baruch.cuny.edu/faculty-profile/armen-hovakimian/

Milos Vulanovic

EDHEC Business School ( email )

24, avenue Gustave Delory
CS 50411
Roubaix, 59057
France

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