Kicking Maturity Down the Road: Early Refinancing and Maturity Management in the Corporate Bond Market

Qiping Xu

The Review of Financial Studies, 2018, vol. 31, issue 8, 3061-3097

Abstract: This paper examines debt maturity management through early refinancing, where firms retire their outstanding bonds before the due date and simultaneously issue new ones as replacements. Speculative-grade firms frequently refinance their corporate bonds early to extend maturity, particularly under accommodating credit supply conditions, leading to a procyclical maturity structure. In contrast, investment-grade firms do not manage their maturity in the same manner. I exploit the protection period of callable bonds to show that the maturity extension is not driven by unobservable confounding factors. The evidence is consistent with speculative-grade firms dynamically managing maturity to mitigate refinancing risk. Received June 6, 2016; editorial decision September 21, 2017 by Editor Philip Strahan.

Date: 2018
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