Premium
Corporate debt maturity and stock price crash risk
Author(s) -
Dang Viet Anh,
Lee Edward,
Liu Yangke,
Zeng Cheng
Publication year - 2018
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12134
Subject(s) - stock price , business , monetary economics , maturity (psychological) , debt , stock (firearms) , crash , financial economics , financial system , economics , finance , computer science , geography , paleontology , developmental psychology , psychology , biology , programming language , series (stratigraphy) , archaeology
We find that firms with a larger proportion of short‐term debt have lower future stock price crash risk, consistent with short‐term debt lenders playing an effective monitoring role in constraining managers’ bad‐news‐hoarding behaviour. The inverse relationship between short‐maturity debt and future crash risk is more pronounced for firms that are harder to monitor due to weaker corporate governance, higher information asymmetry, and greater risk‐taking. These findings suggest that short‐term debt substitutes for other monitoring mechanisms in curbing managerial opportunism and reducing future crash risk. Our study implies that short‐maturity debt not only preserves creditors’ interests, but also protects shareholders’ wealth.