43 Pages Posted: 29 Oct 2009 Last revised: 28 Jan 2013
Date Written: January 18, 2013
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 profitability, and during recessions.
Keywords: Rollover risk, Debt maturity, Credit rating
JEL Classification: G12, G24, G32
Suggested Citation: 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