THE DEBT MATURITY STRUCTURE OF NIGERIAN QUOTED FIRMS
Oluseun A. Paseda 1, Rufus A. Olowe 2
1Department of Finance, University of Lagos, Akoka, Lagos, Nigeria
2Department of Finance, University of Lagos, Akoka, Lagos, Nigeria.
Perhaps, the most familiar idea underlying debt maturity choice is the maturity-matching hypothesis wherein liabilities’ maturities correlate with assets’ maturities. However, the maturity-matching hypothesis does not provide a comprehensive explanation for many empirical patterns of firm behavior. This study investigates the determinants of debt maturity choice using a panel of 50 Nigerian quoted firms between 1999 and 2014. Using simple correlation analysis and dynamic panel data regression techniques, the study documents the following findings. First, the marginal tax rate exerts positive influence on the use of short-term borrowing perhaps because firms exploit potential tax benefits of borrowing through the short-term channel, consistent with the tax hypothesis. Second, small firms with fewer tangible assets tend to utilize more short-term borrowing. This effect is more pronounced in unique industries and for dividend payers. Third, growth opportunities exert a weak positive influence on the use of short-term borrowing thus implying that short-term debt may play minor role in ameliorating the agency cost of underinvestment. However, firms with more volatile earnings and less liquid assets utilize less short-term borrowing. Finally, macroeconomic variables exert significant influences on the debt maturity choice with monetary policy and government debt wielding positive effects while private credit, term spread and economic growth have inverse effects. The findings generate important implications along four non-mutually exclusive views of debt maturity such as signaling, contracting-costs, tax and liquidity hypotheses. The study recommends corporate debt and macroeconomic policies that promote prudent use of debt maturities.
Keywords: Debt maturity, Contracting-cost hypotheses, Signaling hypotheses, Tax hypotheses, Liquidity risk hypotheses.
JEL: G30, G32.