Monetary Policy and the Maturity Structure of Corporate Debt

Abstract

We show that lower monetary policy rates lengthen the maturity structure of corporate debt. A 1 standard deviation policy rate cut raises the share of long-term debt — i.e., with maturity above 1 year — by 87 basis points, explaining 20% of its variation. In the cross-section, large and bond-issuing firms drive the adjustment. We propose a theory rationalizing these findings. Lower policy rates increase long-term bond demand due to reach-for-yield. Financial frictions allow large firms only to benefit by refinancing at lower yield. Empirical evidence on corporate bond issuance and holdings by insurers and mutual funds supports this mechanism.

Keywords: Monetary Policy, Corporate Debt, Maturity, Reach for yield, Financial Frictions

JEL Classification: E44, E52, G20, G21, G23, G30, G32