The determinants of debt maturity in Australian firms

Alcock, Jamie; Finn, Frank; Tan, Kelvin Jui Keng

doi:10.1111/j.1467-629x.2010.00397.x

Cited by 49 publications

(52 citation statements)

References 62 publications

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“…First, in our study 66% of respondents use foreign debt, whereas Graham and Harvey's survey indicates only 31% seriously consider issuing foreign debt. This difference could be due to the traditionally smaller debt market in Australia compared to the U.S. (Alcock, Finn and Tan, 2012). Second, in contrast to our results, Graham and Harvey (2001) find that the most popular reason for using foreign debt is providing a natural hedge 17 for foreign revenues, followed by keeping the source of the funds close to the use of the funds, and tax incentives.…”

Section: %contrasting

confidence: 56%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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Section: %contrasting

confidence: 56%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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“…In line with Alcock, Finn, and Tan (2012), Antoniou, Guney, and Paudyal (2006), Cai et al (2008), Fan et al (2012), García-Teruel and Martínez-Solano (2010), and Kirch and Terra (2012), we use the ratio of long-term debt to total debt as a measure of debt maturity. Table 2 shows that the mean DebtM for the period under study is around .627.…”

Section: Samplementioning

confidence: 99%

“…For instance, debt financing is assumed to decrease information asymmetry between managers and shareholders (Stulz, 1990) and to constrain managerial discretion by decreasing a firm's free cash flow (Jensen, 1986), opportunities for managerial empire building (Hart, 1995), underinvestment (Myers, 1977), and the risk-shifting problem (Barnea, Haugen & Senbet, 1980). Ownership concentration is also considered to be a governance mechanism that minimizes managershareholder agency problems in countries other than the US and the UK (Kumar & Zattoni, 2014;La Porta, Lopez-de-Silanes, & Shleifer, 1999), a perspective corroborated, among others, by Sánchez-Ballesta and García-Meca (2011) in Spain, Shuto and Kitagawa (2011) in Japan, La Bruslerie and Latrous (2012) in France, Alcock et al (2012) in Australia, and Céspedes, González, and Molina (2010) in Latin America.…”

mentioning

confidence: 97%

Country‐level governance quality, ownership concentration, and debt maturity: A comparative study of Brazil and Chile

Martins

Schiehll

Terra

2017

Corporate Governance

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Manuscript type EmpiricalResearch Question/Issue This study investigates the interplay between country-level governance quality and the capital structure choice at the firm level in Brazil and Chile. We examine the association between a firm's ownership concentration and its debt maturity structure and whether country-level governance quality influences this association.Research Findings/Insights Using a large firm-level dataset from Brazil and Chile for the period 2008-2013, we find a positive association between low ownership concentration and debt maturity. However, this association becomes negative when the largest shareholder has high ownership concentration. This result suggests that long-term debt and ownership concentration act as substitute monitoring mechanisms. Moreover, debt maturity is inversely related to our aggregated index of country-level governance quality, suggesting that in countries with governance systems that effectively protect debt holders, firms with high benefits of control (high ownership concentration) will use debt with shorter repayment periods in order to benefit from frequent monitoring by debt holders. Overall, our results support the view that financial markets tend to pressure firms with high benefits of control or greater agency conflict to make a tradeoff between the benefits of control and the cost and maturity structure of debt financing.Theoretical/Academic Implications This study contributes to the research on comparative corporate governance and capital structure. We also respond to recent calls to bridge the gap between under-and over-socialized views of corporate governance by examining the interplay between firm-and country-level governance variables. Our findings suggest a substitution effect between monitoring by equity holders and by debt holders, and that country-level governance quality exerts a disciplinary influence over a firm's choice of debt maturity structure.Practitioner/Policy Implications Investors seeking to enter emerging markets such as Brazil and Chile can benefit from considering national governance factors that enhance debt holders' external monitoring effectiveness. Because our findings show the importance of considering and improving the quality of country-level governance, they are also useful for policy makers aiming to reform corporate governance practices in emerging markets.

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“…No strong support is found, however, for the remaining tax hypotheses as well as for the signaling and liquidity risk hypotheses in any of the three countries. Despite the lack of evidence in these case of U.K., France, Germany, and Spain, Alcock, Finn, and Tan (2012) present strong evidence in favor of the signaling view in the case of Australian firms.…”

Section: Large Publicly-traded Firm Studiesmentioning

confidence: 92%

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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The determinants of debt maturity in Australian firms

Cited by 49 publications

References 62 publications

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

Country‐level governance quality, ownership concentration, and debt maturity: A comparative study of Brazil and Chile

Structure of Debt Maturity Across the Firm Type Spectrum

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