Debt maturity of different types of debt

This paper documents the different debt maturity choices of firms by allowing debt heterogeneity. We use a sample of US companies’ capital structure and employ dynamic panel regressions and Instrumental Variable approach. When taking the maturity of each type of debt into account, the researcher fails to validate the non-linear relationship between credit quality (firm size) and debt maturity predicted by Diamond in 1991. This study finds a non-linear relationship between revolving credit, term loan, and capital leases but does not find the same relationship with bonds and notes or trust preferred securities. Also, this research finds that different types of debt are explained differently by existing debt maturity theory such as information asymmetry, agency cost of debt, signaling, tax, matching asset maturity, and timing the market hypothesis.The findings of this paper shed light on the intricate dynamics of debt maturity choices among firms, challenging existing theoretical frameworks. By meticulously examining a diverse array of debt instruments within US companies’ capital structures, the study unveils a nuanced non-linear relationship between credit quality (proxied by firm size) and debt maturity, contrary to Diamond’s seminal work. Notably, the research delineates varying patterns across different types of debt, revealing distinctive relationships for revolving credit, term loans, and capital leases compared to bonds, notes, or trust preferred securities. Moreover, the study enriches our understanding of debt maturity determinants by dissecting the influence of factors such as information asymmetry, agency costs, signaling, tax considerations, asset maturity matching, and market timing hypotheses. These findings not only contribute to the refinement of debt maturity theories but also offer valuable insights for practitioners navigating capital structure decisions in dynamic economic landscapes.