Clientele Effects Explain the Decline in Corporate Bond Maturities
49 Pages Posted: 23 Jan 2019 Last revised: 29 Apr 2020
Date Written: December 5, 2019
The average maturity of newly issued corporate bonds has declined substantially over the past 40 years, and traditional determinants of debt maturity fail to explain this decrease fully. We show that the changing composition of the investors in the corporate bond market resolves this puzzle. The results of a Granger causality test, a natural experiment, and a regulatory study suggest that a decline in ownership share of insurance companies—which prefer long-term bonds—in the corporate bond market explains the maturity decline. These findings illustrate how investor preferences can have real effects on corporations.
Keywords: Debt Maturity, Supply of Credit, Demand for Bonds, Insurance Company Ownership, Clientele Effects
JEL Classification: G20, G22, G23, G30, G32
Suggested Citation: Suggested Citation