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Does Stock Liquidity Affect Corporate Debt Maturity Structure?

Author

Listed:
  • Joseph M. Marks

    (D’Amore-McKim School of Business, Northeastern University, 360 Huntington Avenue, Boston, MA 02115, USA)

  • Chenguang Shang

    (Sawyer Business School, Suffolk University, Boston, MA 02108, USA)

Abstract

We show an inverse relation between the use of short-term debt and stock market liquidity. This finding is robust to a battery of control variables, alternative measures of the key variables, and various identification strategies. A difference-in-difference (DiD) approach suggests that the relation between debt maturity structure and stock liquidity may be causal. The impact of stock liquidity on debt maturity is stronger in the presence of large institutional holdings and when borrowers are subject to greater refinancing risk. We also provide evidence that firms with liquid stock tend to issue longer-term bonds and enjoy lower bond yield spreads. Overall, our results support the view that the governance function of stock market liquidity reduces the necessity of debt market monitoring, which allows firms to shift toward longer-term debt to avoid the costs and risk of frequent refinancing.

Suggested Citation

  • Joseph M. Marks & Chenguang Shang, 2021. "Does Stock Liquidity Affect Corporate Debt Maturity Structure?," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-53, March.
    • Handle: RePEc:wsi:qjfxxx:v:11:y:2021:i:01:n:s2010139221500051
    DOI: 10.1142/S2010139221500051
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