Kicking Maturity Down the Road: Early Refinancing and Maturity Management in the Corporate Bond Market

Abstract

This paper examines debt maturity management through early refinancing, where firms retire their outstanding bonds before the due date and simultaneously issue new ones as replacements. Speculative-grade firms frequently refinance their corporate bonds early to extend maturity, particularly under accommodating credit supply conditions, leading to a procyclical maturity structure. In contrast, investment-grade firms do not manage their maturity in the same manner. I exploit the protection period of callable bonds to show that the maturity extension is not driven by unobservable confounding factors. The evidence is consistent with speculative-grade firms dynamically managing maturity to mitigate refinancing risk.

Received June 6, 2016; editorial decision September 21, 2017 by Editor Philip Strahan.