Corporate debt maturity and stock price crash risk

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 behaviour. The inverse relationship between short‐maturity debt and future...

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Bibliographic Details
Published in:European financial management : the journal of the European Financial Management Association 2018-06, Vol.24 (3), p.451-484
Main Authors: Dang, Viet Anh, Lee, Edward, Liu, Yangke, Zeng, Cheng
Format: Article
Language:English
Subjects:
Asymmetric information
Bond issues
Corporate debt
Corporate governance
Creditors
debt maturity
Hoarding
information asymmetry
International finance
Job performance
Maturity
News
Short term debt
stock price crash risk
Stock prices
Stockholders
Wealth
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Summary: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 behaviour. The inverse relationship 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.
ISSN:1354-7798
1468-036X
DOI:10.1111/eufm.12134