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The Relation between Corporate and Government Debt Maturity in Europe

Published online by Cambridge University Press:  08 October 2018

Stefano Lugo Open the ORCID record for Stefano Lugo [Opens in a new window]  and
Giulia Piccillo
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Abstract

This article investigates the gap-filling explanation for corporate debt maturity choices in a multi-country setting. We argue that companies adjust their debt maturity in response to shocks in government debt maturity both at home and abroad; the difference between the two effects depends on the markets’ relative size and level of integration. Focusing on the European case and treating the Economic and Monetary Union as a shock in market integration, we find strong empirical support for our predictions. Our results have relevant implications for the opportunity for individual governments to use their debt maturity structure as a policy tool.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 5 , October 2019 , pp. 2119 - 2140
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

A previous version of this article was written when Piccillo was at Utrecht University. For helpful discussions and suggestions, we thank Paul Malatesta (the editor), David Mauer (the referee), Anna Salomons, Joel Shapiro, Utz Weitzel, and seminar participants at the 2016 International Finance and Banking Society (IFABS) conference, Utrecht University, and the University of Liverpool. We are grateful to Juan Jose Cortina, Tatiana Didier, and Sergio Schmukler for sharing their estimates of the average maturity of long-term corporate debt in Europe.

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