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Debt Maturity Structure and Credit Quality

43 Pages Posted: 29 Oct 2009 Last revised: 28 Jan 2013

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Fenghua Song

Pennsylvania State University - Smeal College of Business

Vijay Yerramilli

University of Houston, C. T. Bauer College of Business

Date Written: January 18, 2013

Abstract

We examine whether a firm's debt maturity structure affects its credit quality. Consistent with theory, we find that firms with greater exposure to rollover risk (measured by the amount of long-term debt payable within a year relative to assets) have lower credit quality; long-term bonds issued by those firms trade at higher yield spreads, indicating that bond market investors are cognizant of rollover risk arising from a firm's debt maturity structure. These effects are stronger among firms with a speculative grade rating, declining profi tability, and during recessions.

Keywords: Rollover risk, Debt maturity, Credit rating

JEL Classification: G12, G24, G32

Suggested Citation

Gopalan, Radhakrishnan and Song, Fenghua and Yerramilli, Vijay, Debt Maturity Structure and Credit Quality (January 18, 2013). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=1495849 or http://dx.doi.org/10.2139/ssrn.1495849

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Fenghua Song (Contact Author)

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States
814.863.4905 (Phone)
814.865.3362 (Fax)

HOME PAGE: http://www.personal.psu.edu/fxs16

Vijay Yerramilli

University of Houston, C. T. Bauer College of Business ( email )

Houston, TX 77204
United States
713-743-2516 (Phone)

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