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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.

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  • 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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    More about this item

    Keywords

    Debt maturity; Institutional quality; Financial development; Factor analysis; Dynamic panel data analysis; South America;
    All these keywords.

    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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