Debt Maturity, Leverage, and Political Uncertainty
North American Journal of Economics and Finance, Forthcoming
53 Pages Posted: 16 Dec 2018 Last revised: 26 Apr 2019
Date Written: November 25, 2018
This study investigates the effects of political uncertainty (PU) on corporate debt maturity and leverage using a novel measure of firm-specific PU. We find that PU is negatively associated with debt maturity and leverage. Furthermore, the negative effects of PU on debt maturity and leverage are more pronounced for firms with greater investment reversibility and a lower credit rating. PU affects debt maturity and leverage at least five quarters into the future. Both domestic PU and global PU have effects on debt maturity and leverage. Overall, our results suggest that PU deteriorates the external financing environment, leading to firms using more short-term debt and having lower leverage.
Keywords: Debt maturity structure, leverage, political uncertainty
JEL Classification: G18, G32
Suggested Citation: Suggested Citation