Can Managers Successfully Time the Maturity Structure of Their Debt Issues?
This paper provides a rational explanation for the apparent ability of managers to successfully time the maturity of their debt issues. We show that a structural break in excess bond returns during the early 1980s generates a spurious correlation between the fraction of long-term debt in total debt issues and future excess bond returns. Contrary to <link rid="b5">Baker, Taliaferro, and Wurgler (2006)</link>, we show that the presence of structural breaks can lead to nonsense regressions, whether or not there is any small sample bias. Tests using firm-level data further confirm that managers are unable to time the debt market successfully. Copyright 2006 by The American Finance Association.
Year of publication: |
2006
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Authors: | BUTLER, ALEXANDER W. ; GRULLON, GUSTAVO ; WESTON, JAMES P. |
Published in: |
Journal of Finance. - American Finance Association - AFA, ISSN 1540-6261. - Vol. 61.2006, 4, p. 1731-1758
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Publisher: |
American Finance Association - AFA |
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