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Kicking Maturity Down the Road: Early Refinancing and Maturity Management in the Corporate Bond Market

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  • Qiping Xu

Abstract

This paper examines debt maturity management through early refinancing, where firms retire their outstanding bonds before the due date and simultaneously issue new ones as replacements. Speculative-grade firms frequently refinance their corporate bonds early to extend maturity, particularly under accommodating credit supply conditions, leading to a procyclical maturity structure. In contrast, investment-grade firms do not manage their maturity in the same manner. I exploit the protection period of callable bonds to show that the maturity extension is not driven by unobservable confounding factors. The evidence is consistent with speculative-grade firms dynamically managing maturity to mitigate refinancing risk. Received June 6, 2016; editorial decision September 21, 2017 by Editor Philip Strahan.

Suggested Citation

  • Qiping Xu, 2018. "Kicking Maturity Down the Road: Early Refinancing and Maturity Management in the Corporate Bond Market," The Review of Financial Studies, Society for Financial Studies, vol. 31(8), pages 3061-3097.
    • Handle: RePEc:oup:rfinst:v:31:y:2018:i:8:p:3061-3097.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhx116
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    Cited by:

    1. Melvin Jameson & Tao‐Hsien Dolly King & Andrew Prevost, 2021. "Top management incentives and financial flexibility: The case of make‐whole call provisions," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(1-2), pages 374-404, January.
    2. Doruk Cetemen & Felix Zhiyu Feng & Can Urgun, 2019. "Contracting with Non-Exponential Discounting: Moral Hazard and Dynamic Inconsistency," Working Papers 2019-17, Princeton University. Economics Department..
    3. Dick-Nielsen, Jens & Nielsen, Mads Stenbo & von Rüden, Stine Louise, 2021. "The value of bond underwriter relationships," Journal of Corporate Finance, Elsevier, vol. 68(C).
    4. Brown, Scott & Powers, Eric, 2020. "The life cycle of make-whole call provisions," Journal of Corporate Finance, Elsevier, vol. 65(C).
    5. Cici, Gjergji & Zhang, Pei (Alex), 2021. "On the valuation skills of corporate bond mutual funds," CFR Working Papers 21-05, University of Cologne, Centre for Financial Research (CFR).
    6. Jun Kyung Auh & Mattia Landoni, 2022. "Loan Terms and Collateral: Evidence from the Bilateral Repo Market," Journal of Finance, American Finance Association, vol. 77(6), pages 2997-3036, December.
    7. Eric Powers, 2021. "The Optimality of Call Provision Terms," Management Science, INFORMS, vol. 67(10), pages 6581-6601, October.
    8. Qi, Qianru & Wang, Jing, 2021. "Debt structure instability using machine learning," Journal of Financial Stability, Elsevier, vol. 57(C).
    9. Nina Boyarchenko & Leonardo Elias, 2023. "The Good, the Bad, and the Ugly of International Debt Market Data," Staff Reports 1074, Federal Reserve Bank of New York.

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