Debt Maturity Structure and Credit Quality

Radhakrishnan Gopalan, Fenghua Song and Vijay Yerramilli

Journal of Financial and Quantitative Analysis, 2014, vol. 49, issue 4, 817-842

Abstract: We examine whether a firm’s debt maturity structure affects its credit quality. Consistent with theory, we find that firms with greater exposure to rollover risk (measured by the amount of long-term debt payable within a year relative to assets) have lower credit quality; long-term bonds issued by those firms trade at higher yield spreads, indicating that bond market investors are cognizant of rollover risk arising from a firm’s debt maturity structure. These effects are stronger among firms with a speculative-grade rating and declining profitability, and during recessions.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:cup:jfinqa:v:49:y:2014:i:04:p:817-842_00

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