Corporate Debt Maturity and Stock Price Crash Risk
European Financial Management, Forthcoming
50 Pages Posted: 15 Feb 2016 Last revised: 26 Mar 2017
Date Written: January 20, 2017
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: Suggested Citation