The Effect of Credit Risk on Debt Maturity:Monotonic or Nonmonotonic?

• Main Authors: Shih-Wen Huang, 黃詩雯
• Other Authors: Yu-Chen Tu
• Format: Others
• Language: zh-TW
• Published: 2009
• Online Access: http://ndltd.ncl.edu.tw/handle/b6659z

碩士 === 銘傳大學 === 財務金融學系碩士班 === 97 === When companies have to do external finance, debt maturity is very important. The reason is that company will have to choose to use long term debt or short term debt. For debt maturity choice, there are five theories and one of the most discussed determinants of the debt maturity choice is the credit risk of a firm since the relation between debt maturity and credit risk is rather complex. Empirical results for researchers, one of them find strong evidence for the nonmonotonic relation between credit risk and debt maturity, and the other one find montonic relation between credit risk and debt maturity.If the relation is montonic, companies may use long term debt then harm the creditor because of risk-shifting. In contrast, if the relation is nonmontonic, companies can’t borrow more long term debt in the market then the problem of risk shifting will not exist. Use different proxy variables will have different result. By this reason, we use five different empirical proxies for explanatory variables such as credit rating, Altman’s Zscore, beta, size, and leverage to estimate the relation between debt maturity and credit risk. Using cross-sectional time series data on 493 US firms over the period from 1995 to 2007, we apply panel data regression then try to explain the relation between debt maturity and credit risk which is not identical. Some of proxy variables are nonmontonic such as credit rating, Altman’s Zscore, and leverage; the others are montonic such as size and beta.