Determinants of Corporate Debt Maturity in South America: Do Institutional Quality and Financial Development Matter?

29 Pages Posted: 29 Sep 2010 Last revised: 6 May 2012

See all articles by Guilherme Kirch

Guilherme Kirch

Universidade Federal do Rio Grande do Sul (UFRGS)

Paulo R. S. Terra

FGV-EAESP

Date Written: May 4, 2012

Abstract

We test whether a country’s level of financial development or institutional quality (or both) have a first order effect on corporate debt maturity decisions on a sample of 359 non-financial firms from five South American countries over a 12 year period. We find that there is a substantial dynamic component in the determination of a firm’s debt maturity, and firms face moderate adjustment frictions toward their optimal maturities. More importantly, the level of financial development does not influence debt maturity, whereas the institutional quality of a country has a significant positive effect on the level of long-term debt in a firm’s financial structure. Our results support the hypothesis that the quality of national institutions is an important determinant of corporate financing in general and of debt maturity in particular.

Keywords: Debt Maturity, Institutional Quality, Financial Development, Factor Analysis, Dynamic Panel Data Analysis, South America

JEL Classification: G32, E44, G39

Suggested Citation

Kirch, Guilherme and Terra, Paulo Renato Soares, Determinants of Corporate Debt Maturity in South America: Do Institutional Quality and Financial Development Matter? (May 4, 2012). Available at SSRN: https://ssrn.com/abstract=1684240 or http://dx.doi.org/10.2139/ssrn.1684240

Guilherme Kirch

Universidade Federal do Rio Grande do Sul (UFRGS) ( email )

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Porto Alegre, RS, Rio Grande do Sul 90010-460
Brazil
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HOME PAGE: http://www.ufrgs.br/escoladeadministracao/guilherme-kirch/

Paulo Renato Soares Terra (Contact Author)

FGV-EAESP ( email )

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Brazil
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