Trade-off model of debt maturity structure

被引：40
作者：
Sang-Gyung Jun
Frank C. Jen
机构：
[1] School of Business, Hanyang University, Seoul
[2] 355 Jacobs Center, School of Management, State University of New York, Buffalo
来源：
Review of Quantitative Finance and Accounting | 2003年 / 20卷 / 1期
关键词：
Agency cost; Debt maturity; Financial flexibility; Financial strength; Financing decision;
D O I：
10.1023/A:1022190205033
中图分类号：
学科分类号：
摘要：
In this paper, we suggest the trade-off model to explain the choice of debt maturity. This model is based on balancing between risk and reward of using shorter-term loans. Shorter-term loans have cost advantage over, but incur higher refinancing and interest rate risk than longer-term loans. Using the Compustat data, we show that the principal components of financial attributes are financial flexibility and financial strength. Therefore, only firms with greater financial flexibility and financial strength can use proportionately more short-term loans. We also document that financially strong firms take advantage of lower interest rates of short-term debt. They use proportionately more short-term loans when the term premium is high. The results of our study also provide evidence supporting the agency cost hypothesis, which is strongly supported by current literature. © 2003 Kluwer Academic Publishers.
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页码：5 / 34
页数：29
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