Early Refinancing and Maturity Management in the Corporate Bond Market

This paper studies early refinancing activities in the corporate bond market and its implications for debt maturity structure. In additional to interest rate reduction, speculative-grade firms constantly extend maturity through early refinancing. Moreover, they take advantage of accommodating credit market conditions to extend maturity on a large scale, leading to pro-cyclical debt maturity structure. The evidence is consistent with precautionary maturity management, where speculative-grade firms extend maturity in order to hedge against future refinancing risk, as the longer maturity reduces the possibility of being forced to refinancing at high yield rates. In contrast, investment-grade firms do not appear to manage their maturity similarly, as they are less exposed to refinancing risk. ∗I am extremely grateful for my advisors Douglas Diamond, Zhiguo He, Anil Kashyap, Gregor Matvos and Amir Sufi for their invaluable input. I would also like to thank Stephen Kaplan, Kelly Shue, and Michael Weisbach, as well as seminar participants at the University of Chicago and London Business School Trans-Atlantic Doctoral Conference. Research support from the Deutsche Bank and Bradley Foundation is gratefully acknowledged; any opinions expressed herein are those of the author. †Email: [email protected]