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Corporate Debt Maturity and Future Firm Performance Volatility

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  • Meg Adachi-Sato
  • Chaiporn Vithessonthi

Abstract

We propose a simple idea that corporate debt maturity should serve as a good indicator of future firm performance volatility. We show in a simple two-period model that the riskiness of corporate investment is a decreasing function of corporate debt maturity. If “observable†corporate debt maturity and ex ante “unobservable†corporate risk-taking is highly correlated, corporate debt maturity should be highly correlated with “ex post†realized firm performance volatility in following years. Using data on publicly listed firms in 10 developing and developed countries over the period 1991–2013, we find that future firm operating performance volatility decreases as corporate debt maturity increases and that future firm value volatility is not associated with corporate debt maturity. In addition, banking sector development and export intensity of a country play an important role in determining firm operating performance volatility.

Suggested Citation

  • Meg Adachi-Sato & Chaiporn Vithessonthi, 2016. "Corporate Debt Maturity and Future Firm Performance Volatility," PIER Discussion Papers 29, Puey Ungphakorn Institute for Economic Research.
  • Handle: RePEc:pui:dpaper:29
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    More about this item

    Keywords

    Debt maturity; Developing Countries; Developed Countries; Firm Performance Volatility; Investment;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G1 - Financial Economics - - General Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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