Can Managers Successfully Time the Maturity Structure of Their Debt Issues?

Alexander W. Butler · Gustavo Grullon · James Peter Weston

67 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Financial Markets and Investment Strategies Credit Risk and Financial Regulations

Abstract

ABSTRACT 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 Baker, Taliaferro, and Wurgler (2006) , 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.

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References

1989A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle 2008The cost of capital, corporation finance and the theory of investment 2001The theory and practice of corporate finance: evidence from the field 1993Tests for Parameter Instability and Structural Change With Unknown Change Point 1995The New Issues Puzzle 1991The Long‐Run Performance of initial Public Offerings 2006Tests of Conditional Predictive Ability 1999Predictive regressions

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2009Mortgage timing 2006Predicting Returns with Managerial Decision Variables: Is There a Small‐Sample Bias?2018Macroeconomic conditions, financial constraints, and firms’ financing decisions 2018Behavioral Corporate Finance 2010Stock Market Liquidity and the Long-run Stock Performance of Debt Issuers 2017Investor sentiment and management earnings forecast bias

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