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THE DEBT MATURITY CHOICE: AN EMPIRICAL INVESTIGATION
Author(s) -
Mitchell Karlyn
Publication year - 1993
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1993.tb00150.x
Subject(s) - maturity (psychological) , bond , bankruptcy , sample (material) , economics , debt , quality (philosophy) , empirical evidence , empirical research , alternative hypothesis , monetary economics , business , econometrics , actuarial science , financial economics , finance , null hypothesis , statistics , philosophy , chemistry , mathematics , epistemology , chromatography , psychology , developmental psychology
In this paper I develop and test three nonmutually exclusive hypotheses about the determinants of corporations' debt maturity choices using a sample of corporate bonds issued between 1982 and 1986. The empirical evidence strongly supports the hypothesis that firms use bond maturity to facilitate monitoring by outsiders (the monitoring hypothesis) and weakly supports the hypothesis that firms with high‐quality projects use bond maturity to signal project quality (the signaling hypothesis). The evidence does not support the hypothesis that firms use bond maturity to achieve an optimal trade‐off between interest tax shields and bankruptcy costs (the tax/bankruptcy cost hypothesis).