The leverage-maturity trade-off: are they substitutes or complements? Evidence from a cross-country study

• Ano de defesa: 2023
• Autor(a) principal: Nunes, Larissa Araujo
• Orientador(a): Terra, Paulo Renato Soares
• Tipo de documento: Dissertação
• Tipo de acesso: Acesso aberto
• Idioma: eng
• Palavras-chave em Português: Alavancagem financeira; Vencimento da dívida; Simultaneidade; Análise cross-country; Qualidade institucional; Origem legal
• Palavras-chave em Inglês: Financial leverage; Debt maturity; Simultaneity; Cross-country analysis; Institutional quality; Legal origin
• Link de acesso: https://hdl.handle.net/10438/33479

This paper aims to investigate the choice between debt and equity simultaneously with the decision between short- and long-term debt using a sample of 25.540 firms from 37 different countries in the period 2013-2019. We find evidence that leverage and debt maturity are financial policy complements and that the refinancing risk appears to be a more predominant factor than the underinvestment problem in this decision-making. This result is robust to models with both leverage and debt maturity as the main dependent variable. Our result also indicates that institutional quality can amplify the positive relationship between leverage and debt maturity. Specifically, creditor rights, rule of law, control of corruption, and a steady level of economic growth are all factors that emphasize this complementarity role. We also find that the amount of deposits in the country’s banking sector (a proxy for the degree of financial intermediation of a country) and bank concentration have an attenuation effect on the positive relationship between leverage and debt maturity, indicating that the underinvestment problem weights more for bank-oriented economies and highly concentrated banking systems. Finally, we found that creditor rights only influence this relationship in common law countries and the positive effect from control of corruption is stronger when compared to civil law. As for the negative impact from bank concentration and bank orientation, our results show that this substitution effect is stronger in civil law countries. Overall, our results support the hypothesis that the quality of national institutions and the development of the banking system are important determinants of corporate financing in general and in the joint decision between leverage and debt maturity.