Why are U.S. Firms Using More Short-Term Debt?

63 Pages Posted: 19 Jun 2012  

Claudia Custodio

Imperial College London; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Luis Laureano

ISCTE - Lisbon University Institute - School of Business

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Date Written: June 19, 2012

Abstract

We show that corporate use of long-term debt has decreased in the U.S. over the past three decades and that this trend is heterogeneous across firms. The median percentage of debt maturing in more than three years decreased from 53% in 1976 to 6% in 2008 for the smallest firms, but did not decrease for the largest firms. The decrease in debt maturity was generated by firms with higher information asymmetry and new firms issuing public equity in the 1980s and 1990s. Finally, we show that demand-side factors do not fully explain this trend and that public debt markets’ supply-side factors play an important role. Our findings suggest that the shortening of debt maturity has increased the exposure of firms to credit and liquidity shocks.

Keywords: corporate debt maturity, information asymmetry, agency costs, new listings, supply effects

JEL Classification: G20, G30, G32

Suggested Citation

Custodio, Claudia and Ferreira, Miguel A. and Laureano, Luis, Why are U.S. Firms Using More Short-Term Debt? (June 19, 2012). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2087398

Claudia Custodio

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Miguel Almeida Ferreira (Contact Author)

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Luís Laureano

ISCTE - Lisbon University Institute - School of Business ( email )

Avenida das Forças Armadas
Lisboa, 1600-189
Portugal

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