Debt maturity of different types of debt

Abstract

This paper documents the different debt maturity choices of firms by allowing debt heterogeneity. We use a sample of US companies’ capital structure and employ dynamic panel regressions and Instrumental Variable approach. When taking the maturity of each type of debt into account, the researcher fails to validate the non-linear relationship between credit quality (firm size) and debt maturity predicted by Diamond in 1991. This study finds a non-linear relationship between revolving credit, term loan, and capital leases but does not find the same relationship with bonds and notes or trust preferred securities. Also, this research finds that different types of debt are explained differently by existing debt maturity theory such as information asymmetry, agency cost of debt, signaling, tax, matching asset maturity, and timing the market hypothesis.