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

See all articles by Wei-Fong Pan

Wei-Fong Pan

Department of Economics, University of Reading

Xinjie Wang

Southern University of Science and Technology

Shanxiang Yang

West Virginia University - Department of Finance

Date Written: November 25, 2018

Abstract

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

Pan, Wei-Fong and Wang, Xinjie and Yang, Shanxiang, Debt Maturity, Leverage, and Political Uncertainty (November 25, 2018). North American Journal of Economics and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3290341 or http://dx.doi.org/10.2139/ssrn.3290341

Wei-Fong Pan

Department of Economics, University of Reading ( email )

Whiteknights
Reading, Berkshire RG6 6AH
United Kingdom

Xinjie Wang (Contact Author)

Southern University of Science and Technology ( email )

1088 Xueyuan Blvd
Xili, Nanshan District
Shenzhen, Guangdong 518055
China

Shanxiang Yang

West Virginia University - Department of Finance ( email )

Morgantown, WV 26506
United States

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