Clientele Effects Explain the Decline in Corporate Bond Maturities

49 Pages Posted: 23 Jan 2019 Last revised: 29 Apr 2020

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Xiang Gao

University of North Dakota

Cihan Uzmanoglu

Binghamton University, The State University of New York

Date Written: December 5, 2019

Abstract

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

Butler, Alexander W. and Gao, Xiang and Uzmanoglu, Cihan, Clientele Effects Explain the Decline in Corporate Bond Maturities (December 5, 2019). Available at SSRN: https://ssrn.com/abstract=3315551 or http://dx.doi.org/10.2139/ssrn.3315551

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Xiang Gao

University of North Dakota ( email )

Box 7096
Grand Forks, ND 58202
United States

Cihan Uzmanoglu (Contact Author)

Binghamton University, The State University of New York ( email )

Binghamton, NY 13902-6001
United States
607 777 66 38 (Phone)

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