Belief disagreement and debt maturity structure

Dong Leng, Xu Wei and Yilin Zhuo

Economics Letters, 2024, vol. 243, issue C

Abstract: This paper examines how investors’ belief disagreement affects the firm’s debt maturity choice. We find that in the presence of belief disagreement, the firm prefers short-term debt to long-term debt. This is because short-term debt is less risky and can attract more optimistic investors, which raises the debt price and reduces the cost of debt financing. Our result is stronger when long-term debt is more risky compared to short-term debt and investors’ belief dispersion is higher.

Keywords: Belief disagreement; Debt maturity; Maturity mismatch (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524003963

DOI: 10.1016/j.econlet.2024.111912

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