Debt Refinancing and Equity Returns

81 Pages Posted: 31 Oct 2015 Last revised: 11 Oct 2021

See all articles by Nils Friewald

Nils Friewald

Norwegian School of Economics (NHH); Centre for Economic Policy Research (CEPR)

Florian Nagler

Bocconi University; Centre for Economic Policy Research (CEPR); IGIER - Innocenzo Gasparini Institute for Economic Research

Christian Wagner

WU Vienna University of Economics and Business; Vienna Graduate School of Finance (VGSF)

Date Written: August 9, 2021

Abstract

This paper presents empirical evidence that the maturity structure of financial leverage affects the cross-section of equity returns. We find that short-term leverage is associated with a positive premium, whereas long-term leverage is not. The premium for short-term compared to long-term leverage reflects higher exposure of equity to systematic risk. To rationalize our findings, we show that the same patterns emerge in a model of debt rollover risk with endogenous leverage and debt maturity choice. Our results suggest that analyses of leverage effects in asset prices and corporate financial applications should account for the maturity structure of debt.

Keywords: Equity returns, risk premia, financial leverage, debt maturity, empirical cross-sectional asset pricing

JEL Classification: G12, G32, G33

Suggested Citation

Friewald, Nils and Nagler, Florian and Wagner, Christian, Debt Refinancing and Equity Returns (August 9, 2021). Journal of Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2684462 or http://dx.doi.org/10.2139/ssrn.2684462

Nils Friewald

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Florian Nagler

Bocconi University ( email )

Via Roentgen 1
Milan, MI 20136
Italy

HOME PAGE: http://sites.google.com/site/floriannagler/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Milan, MI 20136
Italy

Christian Wagner (Contact Author)

WU Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Vienna Graduate School of Finance (VGSF) ( email )

Welthandelsplatz 1
Vienna, 1020
Austria

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