With good reputation size does not matter: issue frequency and the determinants of debt maturity

Nikolas Rokkanen

Applied Financial Economics, 2010, vol. 20, issue 9, 701-718

Abstract: This article examines empirically the effect firm reputation has on the determinants of debt maturity. Utilizing data from European primary bond market between 1999 and 2005, I find that reputation is a determinant of the maturity of newly issued debt, where firms of high or low reputation issue short-term debt and firms of mediocre reputation issue long-term debt. Thus, reputation appears to mimic a nonmonotonic relationship between credit quality and maturity. The annualized coupon payments are shown to be a significant factor in determining the debt maturity and reveal a monotonously increasing relationship between credit quality and debt maturity once controlled for. Finally, I show that issuers lacking a credit rating have an implied credit quality positioned between Investment Grade (IG) and Speculative Grade (SG) debt.

Date: 2010
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DOI: 10.1080/09603100903493229

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