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What Determines Debt Maturity?
- Source :
-
Review (00149187) . 2019 3rd Quarter, Vol. 101 Issue 3, p155-176. 22p. 1 Chart, 7 Graphs. - Publication Year :
- 2019
-
Abstract
- What determines the maturity structure of debt? In this article, I develop a simple model to explore how the optimal maturity of debt issued by a firm (or a country) depends both on the firm's cyclical state and other features of the economic environment in which it operates. I find that firms with better current earnings and better growth prospects issue debt with longer maturity, while firms operating in more-volatile environments issue debt with shorter maturity. Yield to maturity is a poor indicator of the risk of debt issued by a firm. The reason is simple: Yield to maturity captures both default risk and a component that is a pseudo term premium. In the model, the market does require a term premium and one appears only because of the risk of default. It is not possible to separate the impact of maturity and risk. [ABSTRACT FROM AUTHOR]
- Subjects :
- *DEBT
*YIELD to maturity
*COUNTERPARTY risk
*MATURITY (Finance)
Subjects
Details
- Language :
- English
- ISSN :
- 00149187
- Volume :
- 101
- Issue :
- 3
- Database :
- Academic Search Index
- Journal :
- Review (00149187)
- Publication Type :
- Academic Journal
- Accession number :
- 137618276
- Full Text :
- https://doi.org/10.20955/r.101.155-76