Short-term Corporate Debt Around The World

Abstract

Short-term corporate debt as a proportion of total debt issued by public firms varies greatly across countries, between 28% in the U.S. and 78% in China. This paper argues that the interaction between information asymmetry and legal protection of creditors is an important determinant of debt maturity. When short-term debt plays a dual role as signalling and commitment devices, a reduction in information asymmetry has a larger impact on debt maturity when creditor rights are weaker. We find empirical support for this prediction using firm-level data from 45 countries around the world.

Keywords: debt maturity, information sharing, creditor protection, law and finance

JEL Classification: G21, G32