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Debt maturity of Italian firms

Author

Listed:
  • Silvia Magri

    () (Banca d�Italia)

Abstract

In this paper we test different theories on debt maturity that can be ascribed to either the demand or the supply side of the market. Firm risk, asymmetric information, agency costs are all aspects that should be considered in the analysis. We also include leverage in the firm decision process regarding debt maturity, relying on a simultaneous equations approach. Among Italian industrial firms, theories based on lenders using debt maturity to address information problems and default risk seem to have strong explanatory power. The demand side of the market appears to be less important in determining debt maturity. The role of the supply side of the market is confirmed when considering legal enforcement of loan contracts. Where legal enforcement is low, the negative consequences of asymmetric information are worse for lenders and this explains why they give more importance to asymmetric information proxies in determining debt maturity.

Suggested Citation

  • Silvia Magri, 2006. "Debt maturity of Italian firms," Temi di discussione (Economic working papers) 574, Bank of Italy, Economic Research and International Relations Area.
  • Handle: RePEc:bdi:wptemi:td_574_06
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    corporate finance; debt maturity; legal enforcement;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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