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The debt-maturity structure of small firms in a creditor-oriented environment

Ooghe, Hubert
Heyman, D.
Deloof, Marc
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Publication Type
Working paper
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Supervisor
Publication Year
2003
Journal
Book
Publication Volume
Publication Issue
24
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Publication End page
Publication Number of pages
32
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Abstract
Once a firm decides to issue debt, the characteristics of this debt instrument should be considered. One of the critical decisions involves debt maturity. Using a sample of 1091 Belgian small firms from 1996 until 2000, this study analyses the determinants of the corporate debt-maturity structure of small firms in a creditor-oriented system. Consistent with previous empirical evidence on large firms, the present results strongly support the maturity-matching principle. The hypothesis that firms with many growth opportunities will borrow on the short term as a response to the under-investment problem, is not supported. There is a clear relation between the credit worthiness of a firm and the debt-maturity structure. Firms with a better credit score borrow on the long term, whereas firms with a poor credit quality are apparently forced to borrow on the short term. This evidence contradicts the expected U-shaped relationship between credit worthiness and debt maturity. Size negatively influences debt maturity. Keywords: debt maturity, capital structure, small firms
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Corporate Finance
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