The Debt Maturity Structure of Small Firms in a Creditor Oriented Environment
26 Pages Posted: 25 Jun 2003
Date Written: May 2003
Once a firm decides to issue debt, the characteristics of this debt instrument should be considered. One of the critical decisions involves the debt maturity. Using a sample of 1091 Belgian small firms from 1996 until 2000, we analyse the determinants of the corporate debt maturity structure of small firms in a creditor oriented system. Consistent with empirical evidence on large firms, our results strongly support the maturity matching principle. The hypothesis that firms with a lot of growth opportunities will borrow on short term as a response to the underinvestment problem, is not supported. There is a clear relation between the credit worthiness of a firm and the debt maturity structure: firms with a better credit score borrow on long term, whereas firms with a poor credit quality seem to be forced to borrow on short term. This evidence contradicts to the expected U-shaped relationship between credit worthiness and debt maturity. Size negatively influences debt maturity.
Note: Previously titled "The Debt Maturity Structure of Very Small Firms in a Banking Oriented System"
Keywords: debt maturity, capital structure, small firms
JEL Classification: G32
Suggested Citation: Suggested Citation