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

Posted: 23 Mar 2006

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

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Abstract

This paper provides a rational explanation for the apparent ability of managers to successfully time the maturity of their debt issues. We show that a structural break in excess bond returns during the early 1980s generates a spurious correlation between the fraction of long-term debt in total debt issues and future excess bond returns. Contrary to Baker, Taliaferro, and Wurgler (2006), we show that the presence of structural breaks can lead to nonsense regressions, whether or not there is any small sample bias. Tests using firm-level data further confirm that managers are unable to time the debt market successfully.

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

JEL Classification: G12, G14, G32

Suggested Citation

Grullon, Gustavo and Butler, Alexander W. and Weston, James Peter, Can Managers Successfully Time the Maturity Structure of their Debt Issues?. Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=892882

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/

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/

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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