Corporate Debt Maturity and Stock Price Crash Risk

European Financial Management, Forthcoming

50 Pages Posted: 15 Feb 2016 Last revised: 26 Mar 2017

See all articles by Viet Anh Dang

Viet Anh Dang

Alliance Manchester Business School

Edward Lee

University of Manchester - Alliance Manchester Business School

Yangke Liu

Queen's Management School

Cheng (Colin) Zeng

Hong Kong Polytechnic University

Multiple version iconThere are 2 versions of this paper

Date Written: January 20, 2017

Abstract

We find that firms with a larger proportion of short-term debt have lower future stock price crash risk, consistent with short-term debt lenders playing an effective monitoring role in constraining managers’ bad-news-hoarding behavior. The inverse relation between short-maturity debt and future crash risk is more pronounced for firms that are harder to monitor due to weaker corporate governance, higher information asymmetry, and greater risk-taking. These findings suggest that short-term debt substitutes for other monitoring mechanisms in curbing managerial opportunism and reducing future crash risk. Our study implies that short-maturity debt not only preserves creditors’ interests, but also protects shareholders’ wealth.

Keywords: Debt maturity; Stock price crash risk; Corporate governance; Information asymmetry

JEL Classification: G3, G12, G14

Suggested Citation

Dang, Viet Anh and Lee, Edward and Liu, Yangke and Zeng, Cheng, Corporate Debt Maturity and Stock Price Crash Risk (January 20, 2017). European Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2732587 or http://dx.doi.org/10.2139/ssrn.2732587

Viet Anh Dang (Contact Author)

Alliance Manchester Business School ( email )

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Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

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United Kingdom

Yangke Liu

Queen's Management School ( email )

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Belfast, BT9 5EE
United Kingdom

Cheng Zeng

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

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