Scandinavian Working Papers in Business Administration

Working Papers,
Hanken School of Economics

No 522: With Good Reputation Size Does not Matter: Issue Frequency and the Determinants of Debt Maturity

Nikolas Rokkanen ()
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Nikolas Rokkanen: Swedish School of Economics and Business Administration, Postal: Arkadiankatu 22, P.O.B. 479; FIN 00101 Helsinki, Finland

Abstract: This paper examines empirically the effect firm reputation has on the determinants of debt maturity. Utilising data from European primary bond market between 1999 and 2005, I find that the maturity choice of issuers with a higher reputation is less sensitive to macroeconomic conditions, market credit risk-premiums, prevailing firm credit quality and size of the debt issue. The annualised coupon payments are shown to be a significant factor in determining the debt maturity and reveal a monotonously increasing relationship between credit quality and debt maturity once controlled for. Finally, I show that issuers lacking a credit rating have an implied credit quality positioned between investment-grade and speculative-grade debt.

Keywords: corporate debt maturity; credit risk; debt seniority; subordination; macroeconomic; reputation

33 pages, February 7, 2007

Price: 10

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