Do Shareholder Protection and Creditor Rights Have Distinct Effects on the Association Between Debt Maturity and Ownership Structure?

Forthcoming in Journal of Business Finance & Accounting (JBFA)

40 Pages Posted: 9 Jan 2020

See all articles by Henrique Castro Martins

Henrique Castro Martins

University of Unisinos

Eduardo Schiehll

HEC Montréal; Aalto University School of Business

Paulo R. S. Terra

FGV-EAESP

Date Written: December 18, 2019

Abstract

This study examines the effects of the firm’s ownership concentration and its institutional environment on corporate debt maturity choices. As ownership concentration and debt maturity are alternative governance mechanisms, we theorize and investigate whether their association is influenced by country-level governance factors that enhance outside monitoring by minority shareholders and debtholders. Our investigation is based on a dataset of 50,599 firm-year observations from 38 countries. We use a propensity-score matching approach and find that the effect of ownership concentration on debt maturity is conditional to country-level governance attributes. Ownership concentration has a negative effect on debt maturity in countries where both shareholder protection and creditor rights are weak. Ownership concentration, however, tends to lengthen debt maturity as protection increases, and this positive effect on the length of debt maturity is stronger in countries enhancing protection towards debtholders (instead of shareholders). We also explore other characteristics of ownership structure, such as the identity the presence of controlling shareholders. These results corroborate the view that entrenched shareholders may use debt maturity opportunistically. Our study provides new insights into the interplay between firm- and country-level governance mechanisms and a deeper understanding of cross-country differences in the association between ownership structure and debt financing.

Keywords: Debt maturity, Investor protection, Shareholder protection, Creditor rights, Corporate governance, Agency costs, Comparative Analysis

JEL Classification: G32, G34, O57

Suggested Citation

Martins, Henrique Castro and Schiehll, Eduardo and Terra, Paulo Renato Soares, Do Shareholder Protection and Creditor Rights Have Distinct Effects on the Association Between Debt Maturity and Ownership Structure? (December 18, 2019). Forthcoming in Journal of Business Finance & Accounting (JBFA). Available at SSRN: https://ssrn.com/abstract=3506086

Henrique Castro Martins

University of Unisinos

São Leopoldo
Rio Grande do Sul, 93022000
Brazil

Eduardo Schiehll (Contact Author)

HEC Montréal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H2X 2L3
Canada
514-340-6516 (Phone)
514-340-5633 (Fax)

Aalto University School of Business ( email )

Finland

Paulo Renato Soares Terra

FGV-EAESP ( email )

Rua Itapeva 474 - 8o andar
Bairro Bela Vista
São Paulo, 01332-000
Brazil
11-3799-7899 (Phone)

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