How Does Economic Policy Uncertainty Affect Corporate Debt Maturity?

64 Pages Posted: 21 Jun 2019 Last revised: 28 Jan 2022

See all articles by Xiang Li

Xiang Li

Halle Institute for Economic Research

Date Written: September 15, 2019

Abstract

This paper investigates whether and how economic policy uncertainty affects corporate debt maturity. Using a large firm-level dataset for four European countries, we find that an increase in economic policy uncertainty is significantly associated with a shortened debt maturity. Moreover, the impacts are stronger for innovation-intensive firms. We use firms' flexibility in changing debt maturity and the deviation to leverage target to gauge the causal relationship, and identify the reduced investment and steepened term structure as the transmission mechanisms.

Keywords: Economic Policy Uncertainty, Debt Maturity, Capital Structure, Corporate Investment

JEL Classification: D81, G32

Suggested Citation

Li, Xiang, How Does Economic Policy Uncertainty Affect Corporate Debt Maturity? (September 15, 2019). Available at SSRN: https://ssrn.com/abstract=3404690 or http://dx.doi.org/10.2139/ssrn.3404690

Xiang Li (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

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