Corporate debt maturity and investment over the business cycle

Johannes Poeschl

European Economic Review, 2023, vol. 152, issue C

Abstract: The business cycle dynamics of firms’ debt maturity vary across the firm size distribution. Small and medium-sized firms have a more pro-cyclical debt maturity than large firms. This paper explores the determinants of firms’ debt maturity, and the importance of firms’ debt maturity for their investment and leverage dynamics. To do so, it embeds a maturity choice in a model of firm investment and financing. Firms shorten debt maturity during times when default risk premiums are high and their internal funds are scarce. This behavior is consistent with both the life cycle and business cycle dynamics of firms’ debt maturity. Endogenous debt maturity helps firms to deleverage faster in response to negative shocks.

Keywords: Endogenous debt maturity; Endogenous default; Firm investment; Firm life cycle; Business cycle (search for similar items in EconPapers)
JEL-codes: E32 E44 G32 G33 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:152:y:2023:i:c:s0014292122002288

DOI: 10.1016/j.euroecorev.2022.104348

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