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Corporate debt maturity and future firm performance volatility

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  • Adachi-Sato, Meg
  • Vithessonthi, Chaiporn

Abstract

We propose a simple idea that corporate debt maturity should serve as a good indicator of future firm performance volatility. We show in a simple two-period model that the riskiness of corporate investment is a decreasing function of corporate debt maturity. If “observable” corporate debt maturity and ex ante “unobservable” corporate risk-taking is highly correlated, corporate debt maturity should be highly correlated with “ex post” realized firm performance volatility in following years. Using data on firms in 10 developing and developed countries during 1991–2013, we find that corporate debt maturity is negatively associated with future firm operating performance volatility but is not associated with future firm value volatility.

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  • Adachi-Sato, Meg & Vithessonthi, Chaiporn, 2019. "Corporate debt maturity and future firm performance volatility," International Review of Economics & Finance, Elsevier, vol. 60(C), pages 216-237.
    • Handle: RePEc:eee:reveco:v:60:y:2019:i:c:p:216-237
    DOI: 10.1016/j.iref.2018.11.001
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    More about this item

    Keywords

    Debt maturity; Firm performance volatility; Firm value volatility; Investment; Risk-taking;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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