Corporate Debt Maturity and Stock Price Crash Risk

Research output: Contribution to journalArticle

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.

Bibliographical metadata

Original languageEnglish
Pages (from-to)451-484
JournalEuropean Financial Management
Volume24
Issue number3
Early online date7 Sep 2017
DOIs
Publication statusPublished - Jun 2018

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