The Effect of Taxes on Corporate Debt Maturity Decisions: An Analysis of Public and Private Bond Offerings

1999 ◽  
Vol 21 (2) ◽  
pp. 1-16 ◽  
Author(s):  
Kaye J. Newberry ◽  
Garth F. Novack
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Debt Maturity ◽  
Early Years ◽  
Corporate Bond ◽  
Corporate Debt ◽  
Short Term ◽  
Public And Private ◽  
Theoretical Predictions

This paper tests theoretical predictions of a relation between taxes and corporate debt maturity decisions using bond offerings (public and private) during 1988–1995. Consistent with predictions of a tax clientele effect, a positive relation between firms' marginal tax rates and the maturity term of their corporate bond offerings is found. Also consistent with tax predictions of a term structure effect, the results indicate that firms issue corporate bonds with longer maturities in periods characterized by large term premiums (for long- vs. short-term interest rates). In periods with large term premiums, long-term bonds accelerate interest deductions into the early years of the bond obligation (with the present value of pre-tax interest payments being no more for the long-term bond than for successive short-term bond issues). These findings extend prior research on determinants of financing choices by providing some of the first empirical evidence that taxes are related to corporate debt maturity decisions.

scholarly journals CANDIDE et la monnaie

2009 ◽  
Vol 52 (1) ◽  
pp. 75-103
Author(s):  
Jean-Pierre Aubry ◽  
Pierre Duguay
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Term Structure ◽  
Structural Equations ◽  
Reduced Form ◽  
Real Sector ◽  
Short Term ◽  
The Real ◽  
Structure Equations

Abstract In this paper we deal with the financial sector of CANDIDE 1.1. We are concerned with the determination of the short-term interest rate, the term structure equations, and the channels through which monetary policy influences the real sector. The short-term rate is determined by a straightforward application of Keynesian liquidity preference theory. A serious problem arises from the directly estimated reduced form equation, which implies that the demand for high powered money, but not the demand for actual deposits, is a stable function of income and interest rates. The structural equations imply the opposite. In the term structure equations, allowance is made for the smaller variance of the long-term rates, but insufficient explanation is given for their sharper upward trend. This leads to an overstatement of the significance of the U.S. long-term rate that must perform the explanatory role. Moreover a strong structural hierarchy, by which the long Canada rate wags the industrial rate, is imposed without prior testing. In CANDIDE two channels of monetary influence are recognized: the costs of capital and the availability of credit. They affect the business fixed investment and housing sectors. The potential of the personal consumption sector is not recognized, the wealth and real balance effects are bypassed, the credit availability proxy is incorrect, the interest rate used in the real sector is nominal rather than real, and the specification of the housing sector is dubious.

scholarly journals Non-Financial Corporate Debt in Advanced Economies, 2010–17

2020 ◽  
Vol 20 (120) ◽  
Author(s):  
Luiza Antoun de Almeida ◽  
Thierry Tressel
Keyword(s):  
Economic Growth ◽  
Time Factors ◽  
Debt Maturity ◽  
Debt Financing ◽  
Corporate Bond ◽  
Corporate Debt ◽  
Short Term ◽  
Policy Action ◽  
Financial Conditions ◽  
Advanced Economies

This paper studies the evolution of non-financial corporate debt among publicly listed companies in major advanced economies between 2010 and 2017. Since 2010, firms have started to rely more on corporate bond markets and have used part of their debt to increase their holdings of cash. In our sample of some 5,000 firms, we find substantial differences across countries, industries, firms, and years in leverage and debt maturity, and we also identify time factors that are common drivers of capital structures. Within countries, loosening an index of financial conditions seems to be associated with lengthening debt maturity after controlling for firms’ characteristics. Across firms and countries, leveraging and lengthening debt maturity have been greater where economic growth was stronger. Tighter financial conditions are positively associated with an increase in short-term debt financing. Quantile regressions suggest that there is substantial heterogeneity among firms on how they react to macro-financial conditions: large increases in long-term debt financing and large declines in short-term debt financing tend to be driven more by better macroeconomic performance, while large increases in short-term debt financing are more strongly impacted by tighter financial conditions. Since the paper uses data up to 2017, it does not reflect developments that occurred during the coronavirus pandemic. Nonetheless, sensitivity analysis shows that a significant amount of corporate debt, representing more than 5 percent of GDP, could be at risk in some countries, with an adverse spillover to the financial system if financial conditions tighten or economic growth slows down. This suggests that vulnerabilities should be closely monitored and policy action taken if warranted.

scholarly journals The Equity Curve and Its Relation to Future Stock Returns

2020 ◽  
Vol 13 (2) ◽  
pp. 19
Author(s):  
Olaf Stotz
Keyword(s):  
Stock Returns ◽  
Term Structure ◽  
Investment Strategy ◽  
Absolute Difference ◽  
Option Prices ◽  
Positive Slope ◽  
Short Term ◽  
Theoretical Predictions ◽  
Expected Stock Returns

Using option prices, a new method for estimating the term structure of expected stock returns (equity curve) is proposed. We analyse how the equity curve relates to future stock returns and obtain three main results. First, a higher level of the equity curve is associated with higher future stock returns. Second, a positive slope is followed by future realized returns which are lower in the short term (1 month) than in the long term (1 quarter or 1 year). Third, a steeper slope (either positive or negative) is associated with a larger absolute difference between short-term and long-term returns. Therefore, the equity curve is consistent with theoretical predictions. We also analyse an investment strategy that uses the slope of the equity curve to determine the allocation to stocks. This strategy earns an outperformance of up to 200 basis points per annum.

scholarly journals Stock And Bond Price Dynamics-Evidence From An Emerging Economy

2011 ◽  
Vol 10 (9) ◽  
pp. 93
Author(s):  
M. Venkateshwarlu ◽  
T. Ramesh Babu
Keyword(s):  
Interest Rates ◽  
Stock Returns ◽  
Term Structure ◽  
Stock Prices ◽  
Empirical Studies ◽  
Bond Markets ◽  
Bond Price ◽  
Short Term ◽  
Bond Prices

The motivation for this study is that real stock prices are observed to overreact to changes in interest rates. The real stock prices drop when long-term interest rates rise. It has been observed that bonds and stock prices are typically studied in isolation. The present paper attempts to analyze the dynamic linkages between stock and bond prices in India. One of the important contributions of this study is that in India, very little/almost no work has been done to understand the dynamics of the stock and bond prices after the recent recession. The present study examined the bivariate causal relationship between stock prices and bond prices. In the long term; i.e., periods from 2004 to 2007 and 2008 to 2009, there is no causality from stock market to bond market and vice versa. However, it is found that the bond and stock prices had a bivariate causality in the year 2009 and univariate causality in 2010. The results are interesting and support the view that excess volatility causes granger between the stock and bond markets. This can be inferred as a result of recession investors moving to bond markets and after the signs of recovery the investors might be returning to the stock markets. It is also evident that short-term interest rates have power to forecast short-term stock returns and risk premiums on observation of co-movement between stock and bond prices. This is reiterated by many empirical studies that have shown that the term structure of nominal interest rates contains information potentially useful for the conduct of monetary policy.

The Term Structure of Bond Liquidity

2018 ◽  
Vol 53 (5) ◽  
pp. 2161-2197 ◽  
Author(s):  
Monika Gehde-Trapp ◽  
Philipp Schuster ◽  
Marliese Uhrig-Homburg
Keyword(s):  
Term Structure ◽  
Equilibrium Model ◽  
Trading Volume ◽  
Short Term ◽  
Theoretical Predictions ◽  
Empirical Tests ◽  
Trading Volumes ◽  
Liquidity Premia ◽  
The Impact

We analyze the impact of market frictions on the trading volume and liquidity premia of finite-maturity assets when investors differ in their trading needs. Our equilibrium model generates a clientele effect (frequently trading investors hold only short-term assets) and predicts i) a hump-shaped relation between trading volume and maturity, ii) lower trading volumes of older compared with younger assets, iii) an increasing liquidity term structure from ask prices, iv) a decreasing or U-shaped liquidity term structure from bid prices, and v) spillovers of liquidity from short-term to long-term maturities. Empirical tests for U.S. corporate bonds support our theoretical predictions.

scholarly journals What does a term structure model imply about very long-term interest rates?

2021 ◽  
Vol 62 ◽  
pp. 202-219
Author(s):  
Anne G. Balter ◽  
Antoon Pelsser ◽  
Peter C. Schotman
Keyword(s):  
Interest Rates ◽  
Term Structure ◽  
Structure Model ◽  
Term Structure Model

scholarly journals Debt Maturity and the Dynamics of Leverage

2021 ◽  
Author(s):  
Thomas Dangl ◽  
Josef Zechner
Keyword(s):  
Transaction Costs ◽  
Financial Distress ◽  
Cash Flows ◽  
Debt Maturity ◽  
Corporate Debt ◽  
Short Term ◽  
Trade Off ◽  
Maturity Structure

Abstract This paper shows that short debt maturities commit equityholders to leverage reductions when refinancing expiring debt in low-profitability states. However, shorter maturities lead to higher transaction costs since larger amounts of expiring debt need to be refinanced. We show that this trade-off between higher expected transaction costs against the commitment to reduce leverage in low-profitability states motivates an optimal maturity structure of corporate debt. Since firms with high costs of financial distress and risky cash flows benefit most from committing to leverage reductions, they have a stronger motive to issue short-term debt. Evidence supports the model’s predictions.

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