Precautionary Maturity Management in Corporate Bond Market

, University of 黑料传送门 Booth PhD. in Finance, MBA

This paper studies firms' maturity management through early refinancing activities in the corporate bond market. Speculative-grade firms constantly refinance early to extend maturity, Moreover, they take advantage of accommodating credit market conditions to extend maturity on a large scale, leading to a pro-cyclical debt maturity structure. Investment increases following early refinancing and maturity extension. The evidence is consistent with precautionary maturity management, where speculative-grade firms extend maturity to hedge against future refinancing risk, as the longer maturity reduces the possibility of being forced to refinancing during credit market downturns. By contrast, investment-grade firms do not appear to manage their maturity similarly, because they are less exposed to refinancing risk. V/e also do not observe changes in investment following early refinancing for investment-grade firms.