How does long-term finance affect economic volatility?

Asli Demirguc-Kunt, Balint Horvath and Harry Huizinga

Journal of Financial Stability, 2017, vol. 33, issue C, 41-59

Abstract: In an approach analogous to Rajan and Zingales (1998), we examine how the ability to access long-term debt affects firm-level growth volatility. We find that firms in industries with stronger preference to use long-term finance relative to short-term finance experience lower growth volatility in countries with better-developed financial systems, as these firms may benefit from reduced refinancing risk. Institutions that facilitate the availability of credit information and contract enforcement mitigate refinancing risk and therefore growth volatility associated with short-term financing. Increased availability of long-term finance reduces growth volatility in crisis as well as non-crisis periods.

Keywords: Debt maturity; Financial dependence; Firm volatility; Financial development (search for similar items in EconPapers)
JEL-codes: G20 G32 O16 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: How Does Long-Term Finance Affect Economic Volatility? (2016)
Working Paper: How does long-term finance affect economic volatility ? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:33:y:2017:i:c:p:41-59

DOI: 10.1016/j.jfs.2017.10.005

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