The Determinants of Debt Maturity at Issuance: A System-Based Model

Posted: 1 May 2007

See all articles by Elyas Elyasiani

Elyas Elyasiani

Temple University - Department of Finance

Lin Guo

Suffolk University - Sawyer Business School

Liang Tang

Mount Ida College - School of Business

Abstract

We examine the determinants of corporate debt maturity while taking into account the interdependent relation between maturity and leverage. We do this by estimating a simultaneous-equations model on debt maturity and leverage for a sample of bond-issuing firms. To compare with previous studies, we also estimate a single-equation model on debt maturity using OLS. We define debt maturity as either the maturity of bonds at issuance (incremental approach), or the percentage of a firm's total debt that matures in more than three years (balance-sheet approach). Corroborating the findings of many previous studies, our single-equation OLS results support the underinvestment hypothesis purporting that firms with greater growth opportunities have shorter-term debt. However, under the simultaneous-equations model, the negative relation between a firm's debt maturity and its growth opportunities ceases to hold. Instead, it is the leverage decision that is influenced by growth opportunities. This suggests that existing models may overestimate the effect of growth opportunities on debt maturity.

Keywords: debt maturity, debt issurance, leverage, system-based models

JEL Classification: G32

Suggested Citation

Elyasiani, Elyas and Guo, Lin and Tang, Liang, The Determinants of Debt Maturity at Issuance: A System-Based Model. Review of Quantitative Finance and Accounting, Vol. 19, pp. 351-377, 2002. Available at SSRN: https://ssrn.com/abstract=983776

Elyas Elyasiani

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-5881 (Phone)
215-204-5698 (Fax)

Lin Guo (Contact Author)

Suffolk University - Sawyer Business School ( email )

8 Ashburton Place-Beacon Hill
Boston, MA 02108-2770
United States
617-573-8388 (Phone)
617-573-8345 (Fax)

Liang Tang

Mount Ida College - School of Business ( email )

Newton, MA 02459,
United States

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