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Maturity Clienteles and Corporate Bond Maturities

Published online by Cambridge University Press:  21 July 2022

Alexander W. Butler Open the ORCID record for Alexander W. Butler [Opens in a new window] ,
Xiang Gao  and
Cihan Uzmanoglu
Alexander W. Butler*
Affiliation:
Rice University Jones Graduate School of Business
Xiang Gao
Affiliation:
Loyola University Chicago Quinlan School of Business xgao6@luc.edu
Cihan Uzmanoglu
Affiliation:
Binghamton University – SUNY School of Management cuzmanog@binghamton.edu
*
alex.butler@rice.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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The average maturity of newly issued corporate bonds has declined substantially over the past 40 years, and the traditional determinants of debt maturity fail to explain this decline fully. We show that the changing composition of investors in the corporate bond market influences bond maturities. The results of a Granger causality test, an instrumental variable approach, and a natural experiment suggest that a decline in the insurance companies’ – which prefer long-term bonds – ownership share in the corporate bond market explains a significant part of the unexplained maturity decline. These findings illustrate how investor preferences can have real effects on corporations.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 3 , May 2023 , pp. 1263 - 1294
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank an anonymous referee, Hendrik Bessembinder (the editor), Lee Ann Butler, Larry Harris, David Hwang, Murali Jagannathan, Shikha Jaiswal (FMA discussant), Christian Lundblad (WFA discussant), Rajesh Narayanan, Maureen O’Hara, Yoon Shin (Applied Finance Conference discussant), Shweta Srinivasan, James Weston, and the seminar participants at the 2019 Western Finance Association Annual Meeting, the 2019 Applied Finance Conference, the 2018 Financial Management Association Annual Meeting, Binghamton University–SUNY, California State University–East Bay, Ozyegin University, Rochester Institute of Technology, and Rutgers University–Camden for helpful comments.

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