Firm Life Cycle and Cost of Debt

CERGE-EI Working Paper Series No. 665

49 Pages Posted: 27 Oct 2020 Last revised: 12 Mar 2021

See all articles by Abu S. Amin

Abu S. Amin

Central Michigan University

Blake Bowler

Mercer University; University of Florida - Fisher School of Accounting

Mostafa Monzur Hasan

Macquarie University

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business

Jiri Tresl

University of Mannheim; Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Date Written: September 1, 2020

Abstract

This paper examines the relation between the corporate life cycle and lending spreads. Using a sample of 20,307 firm-loan observations spanning 5,076 publicly traded U.S. firms, we find that mature firms pay lower lending spreads. This reduction is incremental to the variation explained by financial controls that may have previously been thought to sufficiently account for variation in the corporate life cycle. In our multivariate analysis, continuous measures of maturity yield point elasticities with effects as large as 1.50 bps while categorical life cycle measures indicate that firms in the introduction and decline phases pay lending spreads that are greater than firms in the mature phase (6 percent and 12 percent, respectively). We explore omitted variables bias and instrumental variable estimation in robustness testing and find these patterns persist. Our findings are consistent with theoretical predictions regarding the relationship between the corporate life cycle and various lending risks.

Keywords: Firm life cycle, cost of debt, bank loans, risk

JEL Classification: G32, M21

Suggested Citation

Amin, Abu S. and Bowler, Blake and Hasan, Mostafa Monzur and Lobo, Gerald J. and Tresl, Jiri, Firm Life Cycle and Cost of Debt (September 1, 2020). CERGE-EI Working Paper Series No. 665, Available at SSRN: https://ssrn.com/abstract=3688557 or http://dx.doi.org/10.2139/ssrn.3688557

Abu S. Amin (Contact Author)

Central Michigan University ( email )

329 Sloan Hall
Mt Pleasant, MI Michigan 48858
United States
9897747621 (Phone)
9897746456 (Fax)

Blake Bowler

Mercer University ( email )

United States

University of Florida - Fisher School of Accounting ( email )

Warrington College of Business
PO Box 117166
Gainesville, FL 32611-7166
United States

Mostafa Monzur Hasan

Macquarie University ( email )

Level 3, Building 4ER,
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/mostafa-hasan

Gerald J. Lobo

University of Houston - C.T. Bauer College of Business ( email )

Houston, TX 77204-6021
United States
713-743-4838 (Phone)
713-743-4828 (Fax)

HOME PAGE: http://www.bauer.uh.edu/acct/acctprofile.asp?search=Gerald%20Lobo

Jiri Tresl

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Zeitschriftenabteilung
Mannheim, 68131
Germany

Charles University in Prague - CERGE-EI, a joint workplace of Charles University and the Economics Institute of the Czech Academy of Sciences

Politickych veznu 7
Prague, 111 21
Czech Republic

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