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Debt maturity of Italian firms

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Author Info
Silvia Magri () (Banca dÂ’Italia)

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Abstract

In this paper we test different theories on debt maturity that can be ascribed to either the demand or the supply side of the market. Firm risk, asymmetric information, agency costs are all aspects that should be considered in the analysis. We also include leverage in the firm decision process regarding debt maturity, relying on a simultaneous equations approach. Among Italian industrial firms, theories based on lenders using debt maturity to address information problems and default risk seem to have strong explanatory power. The demand side of the market appears to be less important in determining debt maturity. The role of the supply side of the market is confirmed when considering legal enforcement of loan contracts. Where legal enforcement is low, the negative consequences of asymmetric information are worse for lenders and this explains why they give more importance to asymmetric information proxies in determining debt maturity.

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File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td06/td574_06/td574/tema_574.pdf
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Paper provided by Bank of Italy, Economic Research Department in its series Temi di discussione (Economic working papers) with number 574.

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Date of creation: Jan 2006
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Handle: RePEc:bdi:wptemi:td_574_06

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Related research
Keywords: corporate finance; debt maturity; legal enforcement;

Find related papers by JEL classification:
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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    Other versions:
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