How Does Economic Policy Uncertainty Affect Corporate Debt Maturity?

62 Pages Posted: 21 Jun 2019 Last revised: 18 Sep 2019

See all articles by Xiang Li

Xiang Li

Halle Institute for Economic Research

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management

Date Written: September 15, 2019

Abstract

This paper investigates whether and how economic policy uncertainty affects corporate debt maturity. Using a cross-country firm-level dataset for France, Germany, Spain, and Italy from 1996 to 2010, we find that an increase in economic policy uncertainty is significantly associated with a shortened debt maturity. Specifically, a 1% increase in economic policy uncertainty is associated with a 0.22% decrease in the long-term debt-to-assets ratio and a 0.08% decrease in debt maturity. Moreover, the impacts of economic policy uncertainty are stronger for innovation-intensive firms. We use firms' flexibility in changing debt maturity and the deviation to leverage target to gauge the causal relationship, and identify the reduced investment and steepened term structure as transmission mechanisms.

Keywords: Economic Policy Uncertainty, Debt Maturity, Capital Structure, Corporate Investment

JEL Classification: D81, G32

Suggested Citation

Li, Xiang and Su, Dan, How Does Economic Policy Uncertainty Affect Corporate Debt Maturity? (September 15, 2019). Available at SSRN: https://ssrn.com/abstract=3404690 or http://dx.doi.org/10.2139/ssrn.3404690

Xiang Li (Contact Author)

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

Dan Su

University of Minnesota - Twin Cities - Carlson School of Management ( email )

19th Avenue South
Minneapolis, MN 55455
United States

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