Corporate Debt Maturity Choice in Emerging Financial Markets

This paper investigates the determinants of liability maturity choice in emerging markets using a unique panel of 4,500 Ukrainian firms during the period 2000-2006. Our estimates confirm the importance of agency costs, liquidity, signaling, and taxes for the liability term structure of firms operating in a transition economy. Companies have a demand for long-term external debt mainly due to the shortage of internal funds. Firm creditworthiness and access to long-term financing at bond markets are the key drivers of corporate debt structure. Overall, this study provides strong evidence that constrained and unconstrained companies react differently on liquidity risk and, hence, pursue different debt maturity strategies. As predicted by the theory, our empirical findings demonstrate an adverse effect of retained earnings on debt maturity but a positive relationship between the tax rate and long-term debt.