Life Expectancy and Corporate Debt Markets

66 Pages Posted: 2 Aug 2021 Last revised: 15 Feb 2022

See all articles by Zhanhui Chen

Zhanhui Chen

Hong Kong University of Science & Technology (HKUST) - Department of Finance

Vidhan K. Goyal

Hong Kong University of Science and Technology

Pingyi Lou

Fudan University - School of Economics

Wenjun Zhu

Nanyang Business School, Nanyang Technological University

Date Written: July 30, 2021

Abstract

Longevity shocks shift life insurers' demand for bonds of specific maturities. We show that these shifts have real consequences for a firm's financing and investment policies. Life insurance companies increase purchases of long-term bonds when longevity increases. Consequently, long-term bond yields fall. The corporate sector absorbs these shocks by shifting to long-term debt issuances, while increasing investments in long-term assets. The effects are particularly marked where life insurers are the primary holders of a firm's debt. The response is also more pronounced for firms that rely on long-term financing and those that are financially unconstrained.

Keywords: debt maturity, duration risk, bond yields, longevity risk, life insurance companies

JEL Classification: G12, G22, G32, J11

Suggested Citation

Chen, Zhanhui and Goyal, Vidhan K. and Lou, Pingyi and Zhu, Wenjun, Life Expectancy and Corporate Debt Markets (July 30, 2021). Nanyang Business School Research Paper No. 21-35, Available at SSRN: https://ssrn.com/abstract=3896198 or http://dx.doi.org/10.2139/ssrn.3896198

Zhanhui Chen (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

Vidhan K. Goyal

Hong Kong University of Science and Technology ( email )

Clear Water Bay
School of Business and Management
Kowloon
Hong Kong
23587678 (Phone)

HOME PAGE: http://www.vidhangoyal.com

Pingyi Lou

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

HOME PAGE: http://sites.google.com/view/plou002/home

Wenjun Zhu

Nanyang Business School, Nanyang Technological University ( email )

50 Nanyang Avenue
Singapore, 639798
Singapore
(65) 6592-1859 (Phone)

HOME PAGE: http://sites.google.com/view/wenjun-zhu

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