Managerial Myopia and Debt Maturity

35 Pages Posted: 31 Oct 2014 Last revised: 12 Sep 2016

See all articles by Indraneel Chakraborty

Indraneel Chakraborty

University of Miami

Andrew MacKinlay

Virginia Tech

William F. Maxwell

Southern Methodist University (SMU) - Finance Department

Date Written: November 18, 2014


We argue that firms with relatively shorter term debt face higher managerial myopia. Because shorter term debt is less sensitive to the firm's long-term performance, short-term debtholders have less incentive to monitor the firm management regarding myopic investments. Myopic versus long-term investments affect the value of the firm differently at different horizons, and ultimately the firm's short-term and long-term equity returns. We use a generated instrumental variables approach to distinguish the fraction of debt maturity reduction due to investor preference and not firm preference. Ceteris paribus, at the mean issuance debt maturity of almost 10 years, we find that for a one year reduction in debt maturity due to investor preference, five-year equity returns fall by about 2.1% per annum. The benefits of monitoring by debtholders can be quite significant for equityholders.

Keywords: Debt maturity, Managerial myopia, Underwriters

JEL Classification: G32, G34

Suggested Citation

Chakraborty, Indraneel and MacKinlay, Andrew and Maxwell, William F., Managerial Myopia and Debt Maturity (November 18, 2014). Finance Down Under 2015 Building on the Best from the Cellars of Finance Paper, Available at SSRN: or

Indraneel Chakraborty

University of Miami ( email )

P.O. Box 248094
Coral Gables, FL 33124-6552
United States
312-208-1283 (Phone)


Andrew MacKinlay (Contact Author)

Virginia Tech ( email )

1016 Pamplin Hall (0221)
880 West Campus Drive
Blacksburg, VA 24060-0221
United States

William F. Maxwell

Southern Methodist University (SMU) - Finance Department ( email )

United States

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