Clientele Effects Explain the Decline in Corporate Bond Maturities

56 Pages Posted: 23 Jan 2019 Last revised: 22 Jul 2019

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Xiang Gao

Minnesota State University Moorhead

Cihan Uzmanoglu

Binghamton University, The State University of New York

Date Written: July 21, 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 the trend. 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

Butler, Alexander W. and Gao, Xiang and Uzmanoglu, Cihan, Clientele Effects Explain the Decline in Corporate Bond Maturities (July 21, 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

Minnesota State University Moorhead ( email )

Moorhead, MN 56563
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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