Financial Flexibility and Debt Maturity Concentration

Abstract

We examine how exogenous shocks to firms' financial flexibility impact corporate debt maturity structure. We utilize changes in collateral value in the form of real estate price fluctuations as exogenous shocks to firms' debt capacity and, thus, to their financial flexibility. Our theoretical model predicts that higher collateral value leads to greater maturity concentration. This prediction finds robust support in the data, for different measures of real estate value and maturity concentration. The effect is strongest for corporate bonds over bank loans, unsecured over secured debt, and financially constrained firms across several measures. We also explore the effect for newly issued debt.

Keywords: debt maturity concentration, financial flexibility, real estate collateral channel

JEL Classification: J31, J32