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How does economic policy uncertainty affect corporate debt maturity?

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  • Li, Xiang

Abstract

This paper investigates whether and how economic policy uncertainty affects corporate debt maturity. Using a large firm-level dataset for four European countries, we find that an increase in economic policy uncertainty is significantly associated with a shortened debt maturity. Moreover, the impacts are stronger for innovation-intensive firms. We use firms' flexibility in changing debt maturity and the deviation to leverage target to gauge the causal relationship, and identify the reduced investment and steepened term structure as the transmission mechanisms.

Suggested Citation

  • Li, Xiang, 2022. "How does economic policy uncertainty affect corporate debt maturity?," IWH Discussion Papers 5/2022, Halle Institute for Economic Research (IWH).
  • Handle: RePEc:zbw:iwhdps:52022
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    Keywords

    capital structure; corporate investment; debt maturity; economic policy uncertainty;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • 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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