Determinants of Corporate Debt Maturity in South America: Do Institutional Quality and Financial Development Matter?

Kirch, Guilherme; Terra, Paulo Renato Soares

doi:10.2139/ssrn.1684240

Cited by 9 publications

(22 citation statements)

References 64 publications

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“…In addition, banking concentration and the quality of the financial system have been weighted as fundamental within heterogeneous legal frameworks, as in the Latin American case (Gonzales and Gonzales, 2008), where -in addition to institutional quality -significant variables are considered in its relationship with corporate debt (Kirch and Soares, 2012). It is even possible to determine which specific institutional forces such as government quality, rule of law or financial development are directly linked (Fan et al, 2011).…”

Section: Literature Reviewmentioning

confidence: 99%

“…between variables resulting from business performance and the maturity of debt is explicit throughout the previous literature; however, on the aggregate elements in terms of country, there is a recent research that states, for example, that an effective legal system encourages long-term investments (Demirguc-Kunt and Maksimovic, 1999;Nasr et al, 2015;Alves and Francisco, 2015). These authors argue that it is feasible for businesses to engage credibly with banking, controlling the opportunistic behavior of corporate information, so much so that the factors of institutional quality, banking development, volatility of the reference rate and volatility of inflation (Kirch and Soares, 2012) are considered as macro-financial variables. In contrast, Fan et al (2012) consider that in a country with a weak legal system and a low-level of institutional quality, the financial system should make to prevailing products that allow the creditor to have less discretion and easier interpretation.…”

Section: Determinants Of Maturity Of Debtmentioning

confidence: 99%

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Effects of institutional quality and the development of the banking system on corporate debt

Tresierra

Reyes

2018

JEFAS

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Purpose This study aims to determine if the quality of national institutions and banking development condition the maturity of debt depending on the horizon of short or long term. Design/methodology/approach Analysis is performed on a sample of 116 nonfinancial companies from Peru and Brazil. The measures of quality of national institutions and banking development were obtained from World Bank data and included factorial analysis for dynamic considerations. Findings The findings, through the treatment of pointed indicators, the factor analysis and the subsequent estimation of a dynamic econometric model, called GMM-SYS, show that institutional quality fosters the maturity of long-term debt and banking development boots short-term financial relations. Research limitations/implications Evaluating different measures of the quality of national institutions and banking development is necessary to demonstrate the robustness of the results beyond the sample evaluated in Latin America. Practical implications The research allows to understand the interaction between national institutions and system banking through debt maturity, and this is useful for establishing common target between both groups. Social implications It is important for corporate finance to understand the mechanisms of the interaction between national institutions and system banking, because this affects internal decisions of firms regarding financial implications. Originality/value The treatment of measures of national institutions and banking development include dynamic considerations, and the application of this study in Latin America provides new findings regarding these kind of indexes and their interaction with firms´ features such as debt maturity.

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Section: Literature Reviewmentioning

confidence: 99%

Section: Determinants Of Maturity Of Debtmentioning

confidence: 99%

Effects of institutional quality and the development of the banking system on corporate debt

Tresierra

Reyes

2018

JEFAS

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“…The tax and liquidity risk hypotheses, on the other hand, receive somewhat greater support in these studies. Kirch, Renato, and Terra (2012) focus on five South American countries (Argentina, Brazil, Chile, Peru, and Venezuela) and report results that lend partial support for each of the four major groups of debt maturity hypotheses. Most closely related to ours is perhaps the study by Arslan and Karan (2006) who, like us, focus on Turkey.…”

Section: Large Publicly-traded Firm Studiesmentioning

confidence: 99%

“…The idea is that tangible assets play a more important role than intangible assets in reducing the risk of default as they suffer a smaller loss of value when a firm goes into distress (see, for example, Köksal and Orman, 2015). In addition, tangible assets are easier to collateralize and collateral, in turn, might have a more relevant role (in reducing risk) in long-term lending than in short-term lending (Kirch, Renato, and Terra, 2012). Finally, if firms match the maturities of assets and liabilities, tangible assets should be better able to support long-term debt as they are more lasting than intangible assets (Stohs and Mauer, 1996).…”

Section: Tangibility and Profitabilitymentioning

confidence: 99%

Structure of Debt Maturity Across the Firm Type Spectrum

Orman

Köksal

2015

SSRN Journal

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We investigate if and when the leading theories of debt maturity are useful in understanding the maturity choices of nonfinancial firms in a major developing economy, Turkey. Unlike most research, we use a dataset that provides financial information on not only large, publicly-traded firms but also small, privately-held firms across a wide variety of industries. Our strongest finding is that firms that have high leverage also have long maturity. Size, asset maturity, and credit quality are also important, although results depend on the type of firm group considered. The stability of the economic environment as measured by inflation and interest rate volatility also influences debt maturity decisions. Our findings are broadly consistent with the liquidity risk theory. The agency theory is also partially useful in understanding firms' maturity decisions, particularly for medium-and large-sized firms. The signaling theory is most useful when the sample consists of large, publicly-traded firms. We find little evidence that taxes matter for maturity decisions. Our findings also provide some evidence that borrower-lender relationships might influence debt maturity structures.

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“…Bae and Goyal (2009) show banks reduce loan maturities in countries with less efficient contract enforcement. Focusing on firm-level data from five Latin American countries Kirch and Soares Terra (2012) find that the institutional quality of a country has a significant positive effect on the level of long-term debt in a firm's financial structure.…”

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confidence: 99%

Long-term Finance in Latin America: A Scoreboard Model

Beck¹

2016

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work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/ licenses/by-nc-nd/3.0/igo/legalcode) and may be reproduced with attribution to the IDB and for any noncommercial purpose. No derivative work is allowed.Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB's name for any purpose other than for attribution, and the use of IDB's logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license.Note that link provided above includes additional terms and conditions of the license.The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.http://www.iadb.org 2016 1 Abstract * Theory and empirical work have shown that long-term finance is critical for households, firms and government and for the overall development of the economy. The development of efficient and sustainable long-term financial markets, however, depends on macroeconomic stability and an effective institutional framework. Policy initiatives, including tax policy, regulation and competition policies can also improve the availability of long-term finance within these more fundamental constraints. However, country characteristics including size and demographic structure also play an important role. When comparing the provision of long-term finance across countries, it is important to take into account both structural characteristics and long-term policy constraints. A scoreboard for long-term finance in Latin America is suggested with indicators comparing different dimensions of long-term finance. Specifically, the paper suggests several indicators of the depth and inclusiveness of long-term financial markets, to be benchmarked according to country characteristics, and several policy variables, to be included in a scoreboard for long-term finance in Latin America. JEL codes: G10, G18, G21, G22, G23, G28

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Determinants of Corporate Debt Maturity in South America: Do Institutional Quality and Financial Development Matter?

Cited by 9 publications

References 64 publications

Effects of institutional quality and the development of the banking system on corporate debt

Effects of institutional quality and the development of the banking system on corporate debt

Structure of Debt Maturity Across the Firm Type Spectrum

Long-term Finance in Latin America: A Scoreboard Model

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