The maturity structure of debt

다국어 초록 (Multilingual Abstract)

This dissertation suggests a general framework to understand the debt maturity structure of industrial firms. This theoretical framework suggests that firms with different attributes maintain different debt maturity structures, each of which is optimal to them. The underlying rationale of the hypotheses is the balance between risk and reward in using shorter-term loans: shorter-term loans have a cost advantage over longer-term loans while they incur higher cost of financial distress through the presence of refinancing and interest rate risk. My empirical analysis shows that the interest savings from using short-term debt is statistically and economically significant and that an important source of interest savings is synchronizing cash demand with supply.
I propose that the capability of handling refinancing and interest rate risk is mainly determined by financial flexibility and financial strength. Therefore, only firms with higher financial flexibility and financial strength can use proportionately more short-term loans. The results of my empirical analysis show that only financially strong firms can take advantage of lower interest costs on shorter-term debt and thus use proportionately more short-term loans when the term premium is high.
The results of my empirical analysis also support the view that the level of agency costs is an important factor in determining debt maturity structure. Financially weak firms, on average, use more short-term debt than medium firms. They also increase their proportion of short-term debt as they get weaker. I interpret this as an indication of high risk level and high agency costs of financially weak firms. Because of high refinancing and interest rate risk and the resultant agency costs, financially weak firms face investors who demand a prohibitively high premium for lending long-term. Thus, even though they need long-term capital to reduce refinancing and interest rate risk, weak firms are forced to use short-term loans. As financial strength improves, the interest rate difference between long-term and short-term loans decreases. Thus, weak firms will use more long-term debt as they get stronger.
I also derive empirical implications of my hypotheses for the synchronization of cash demand and supply. I find that financial strength and flexibility are important factors that can explain the degree of cash synchronization. Financially strong and flexible firms, on average, employ a higher degree of cash synchronization, and thus save imputed interest costs more effectively than other firms.

목차 (Table of Contents)

• ABSTRACT = viii
• CHAPTER I: INTRODUCTION = 1
• 1.1. Overview of the Study = 1
• 1.2. Literature Review = 3
• 1.3. Research Questions and Statement of the Study = 12
• CHAPTER II: INTEREST SAVINGS HYPOTHESIS = 6
• 2.1. Benefit of Using Shorter-Term Debt = 16
• 2.2. Cost of Using Shorter-Term Debt = 21
• 2.2.1. Relationship Between Debt Maturity Structure and Refinancing Needs = 21
• 2.2.2. Numerical Example of the Model = 28
• 2.2.3. Interest Rate Risk = 30
• 2.3. Development of Interest Savings Hypothesis = 32
• 2.4. Cash Synchronization = 33
• CHAPTER III: FIANCIAL ATTRIBUTES HYPOTHESIS = 36
• 3.1. Determination Of The Optimal Short-term Debt Ratio = 36
• 3.2. Financial Flexibility Hypothesis = 39
• 3.3. Financial Strength Hypothesis = 42
• 3.3.1. Short-term Debt Ratio of Strong Firms = 42
• 3.3.2. Short-term debt ratio of Weak firms = 45
• 3.3.3. Numerical Examples = 51
• 3.4. Empirical Implications = 55
• CHAPTER IV: TESTS OF FIRM ATTRIBUTES HYPOTHESIS = 57
• 4.1. Data and Variables = 57
• 4.1.1. Data = 57
• 4.1.2. Variable Definitions = 59
• 4.1.3. Descriptive Statistics of Variables = 68
• 4.2. Univariate Analysis to Short-term Debt Users = 69
• 4.3. Multivariate Analysis = 71
• 4.3.1. Basic Estimation Models = 71
• 4.3.2. Test Results = 72
• 4.4. Interactions Between Interest Savings And Agency Hypothesis = 78
• CHAPTER V: TESTS OF INTEREST SAVINGS HYPOTHESIS = 81
• 5.1. Data and Variables = 81
• 5.1.1. Data = 81
• 5.1.2. Measures of Imputed interest Rate = 82
• 5.1.3. Other Variables Used = 84
• 5.2. Is Short-term Interest Bearing Debt a Substitute for Trade Credit? = 88
• 5.3. Debt Maturity and Interest Savings = 90
• CHAPTER VI: TESTS OF CASH SYNCHRONIZATION = 95
• 6.1. Data and Variables = 95
• 6.1.1. Data = 95
• 6.1.2. Degree of Cash Synchronization = 96
• 6.1.3. Other Variables = 99
• 6.2. Univariate Analysis = 104
• 6.3. Determinants of Cash synchronization = 108
• 6.4. Synchronization and Interest Savings = 114
• CHAPTER VII: SUMMARY AND CONCLUDING REMARKS = 118
• REFERENCES = 121
• FIGURES = 127
• TABLES = 134