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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

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.

Suggested Citation

  • Kirch, Guilherme & Terra, Paulo Renato Soares, 2012. "Determinants of corporate debt maturity in South America: Do institutional quality and financial development matter?," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 980-993.
  • Handle: RePEc:eee:corfin:v:18:y:2012:i:4:p:980-993
    DOI: 10.1016/j.jcorpfin.2012.05.004
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    2. Orman, Cüneyt & Köksal, Bülent, 2017. "Debt maturity across firm types: Evidence from a major developing economy," Emerging Markets Review, Elsevier, vol. 30(C), pages 169-199.
    3. Ivan E. Brick & Rose C. Liao, 2017. "The joint determinants of cash holdings and debt maturity: the case for financial constraints," Review of Quantitative Finance and Accounting, Springer, vol. 48(3), pages 597-641, April.
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    5. Sandra Correia & Paula Brito & Elísio Brandão, 2014. "Corporate Debt Maturity - An international comparison of firm debt maturity choices," FEP Working Papers 544, Universidade do Porto, Faculdade de Economia do Porto.
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    8. Belkhir, Mohamed & Ben-Nasr, Hamdi & Boubaker, Sabri, 2016. "Labor protection and corporate Debt maturity: International evidence," International Review of Financial Analysis, Elsevier, vol. 45(C), pages 134-149.
    9. Ge, Wenxia & Kim, Jeong-Bon & Li, Tiemei & Li, Yutao, 2016. "Offshore operations and bank loan contracting: Evidence from firms that set up subsidiaries in offshore financial centers," Journal of Corporate Finance, Elsevier, vol. 37(C), pages 335-355.
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    12. Orman, Cüneyt & Bülent, Köksal, 2015. "Structure of Debt Maturity across the Firm Type Spectrum," MPRA Paper 64860, University Library of Munich, Germany.

    More about this item

    Keywords

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

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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