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
Date Written: May 4, 2012
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: Suggested Citation