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Determinants of corporate debt maturity in South America: Do institutional quality and financial development matter?

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  • Kirch, Guilherme
  • Terra, Paulo Renato Soares
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    Abstract

    We test whether a country's level of financial development or institutional quality (or both) has a first‐order effect on corporate debt maturity decisions on a sample of 359 non-financial firms from five South American countries over a 12‐year period. We find that there is a substantial dynamic component in the determination of a firm's debt maturity, and firms face moderate adjustment frictions toward their optimal maturities. More importantly, the level of financial development does not influence debt maturity, whereas the institutional quality of a country has a significant positive effect on the level of long-term debt in a firm's financial structure. Our results support the hypothesis that the quality of national institutions is an important determinant of corporate financing in general and of debt maturity in particular.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Corporate Finance.

    Volume (Year): 18 (2012)
    Issue (Month): 4 ()
    Pages: 980-993

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    Handle: RePEc:eee:corfin:v:18:y:2012:i:4:p:980-993

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    Web page: http://www.elsevier.com/locate/jcorpfin

    Related research

    Keywords: Debt maturity; Institutional quality; Financial development; Factor analysis; Dynamic panel data analysis; South America;

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