Can Managers Successfully Time the Maturity Structure of Their Debt Issues?

37 Pages Posted: 27 Jul 2004

See all articles by Alexander W. Butler

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2004

Abstract

This paper shows that, contrary to existing evidence, corporate managers cannot successfully time the maturity of their debt issues to reduce their cost of capital. Our results indicate that the negative correlation between future excess long-term bond returns and the ratio of long-term debt issues to total debt issues is driven by aggregate pseudo market timing. We show that a structural shift in U.S. monetary and fiscal policy during the early 1980s induces a pseudo market timing effect in the in-sample tests of bond return predictability. After accounting for this structural shift, we find no evidence that corporate managers are able to predict future variations in excess long-term bond returns or to strategically choose the maturity of their debt.

Keywords: Debt maturity, market timing, market efficiency, behavioral finance

JEL Classification: G12, G14, G32

Suggested Citation

Butler, Alexander W. and Grullon, Gustavo and Weston, James Peter, Can Managers Successfully Time the Maturity Structure of Their Debt Issues? (July 26, 2004). Available at SSRN: https://ssrn.com/abstract=569382 or http://dx.doi.org/10.2139/ssrn.569382

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Gustavo Grullon (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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