The Cost of Maturity: Do Firms Overpay for Long-Term Debt?

Henri Servaes and Dian Xu

No 22157, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We estimate the realized cost of corporate bond maturity by comparing long-term bond costs with rating-updated short-rolling counterfactuals. Across 15,683 U.S. fixed-rate corporate bonds issued over January 1997–July 2025, long-term debt cost 1.75 percentage points more per year than a strategy of rolling over debt every 3 years, with a larger wedge among investment-grade issuers. A persistent term spread, not falling short rates, explains the wedge. At the firm level, these costs translate into meaningful additional interest expenses, while the occasional years in which rolling over short-term debt is more expensive can generally be funded from cash savings or by cutting share repurchases. The evidence supports debt-maturity conservatism: managers (over)pay for stable interest expenses rather than retaining cheaper financing options.

Keywords: Cost of debt; Debt maturity; Corporate bonds; Quiet life; Debt conservatism (search for similar items in EconPapers)
JEL-codes: G12 G30 G32 (search for similar items in EconPapers)
Date: 2026-11
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