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A Gap‐Filling Theory of Corporate Debt Maturity Choice

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  • ROBIN GREENWOOD
  • SAMUEL HANSON
  • JEREMY C. STEIN

Abstract

We argue that time variation in the maturity of corporate debt arises because firms behave as macro liquidity providers, absorbing the supply shocks associated with changes in the maturity structure of government debt. We document that when the government funds itself with more short‐term debt, firms fill the resulting gap by issuing more long‐term debt, and vice versa. This type of liquidity provision is undertaken more aggressively: (1) when the ratio of government debt to total debt is higher and (2) by firms with stronger balance sheets. Our theory sheds new light on market timing phenomena in corporate finance more generally.

Suggested Citation

  • Robin Greenwood & Samuel Hanson & Jeremy C. Stein, 2010. "A Gap‐Filling Theory of Corporate Debt Maturity Choice," Journal of Finance, American Finance Association, vol. 65(3), pages 993-1028, June.
    • Handle: RePEc:bla:jfinan:v:65:y:2010:i:3:p:993-1028
    DOI: 10.1111/j.1540-6261.2010.01559.x
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    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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