Clientele Effects Explain the Decline in Corporate Bond Maturities
53 Pages Posted: 23 Jan 2019 Last revised: 7 Dec 2019
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. We show that the changing composition of the investors in the corporate bond market resolves this puzzle. The results of a Granger causality test, an instrumental variable approach, a natural experiment, and a regulatory study suggest that a decline in insurance company ownership in bonds leads to shorter bond maturities. These findings illustrate how developments in financial institutions 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