Debt maturity choice of Nordic firms : Empirical tests on publicly listed Nordic companies

Abstract

This study examines the determinants of debt maturity in Nordic publicly listed firms. One of the traditional views in corporate finance is that capital structure is irrelevant for firms. That is, companies cannot affect their value via capital structure choices. However, another school of researchers believe that in practice, corporate managers may indeed use capital structure decisions, including debt maturity, in an effective way to alleviate problems arising from imperfect markets. Specifically, corporate managers may use debt maturity to reduce agency and information asymmetry related inefficiencies, and minimize corporate tax expenses. The core theories on firm debt maturity are tied to these aspects.

The data in this study consists of annual observations for a total of 704 Nordic publicly listed firms from a ten-year period spanning from 2006 to 2015. Nine independent variables are constructed on the basis of the theoretical framework and previous empirical works on debt maturity. Three different regression methods – pooled OLS regression, fixed effects regression, and cross-sectional OLS regression – are utilized to capture the relation between the independent variables and firm debt maturity in a robust way. To examine any differences in the determinants of debt maturity between the Nordic countries, country- and industry-specific subsamples are taken and the regressions are run on them as well. Of the nine variables examined as potential determinants for debt maturity, four are found to have statistically significant relation with debt maturity. The results show that firm size, leverage, and asset maturity are positively related with debt maturity while firm growth opportunities are negatively related with debt maturity. Furthermore, the results indicate that the Nordic countries are not completely homogeneous – there are country-specific differences in the relevance of the identified determinants.

The results of this study provide consistent support to the contracting-cost theory of debt maturity and limited support to the asymmetric information and liquidity cost theory. However, no evidence is found to support the tax minimization theory. Overall, the results indicate that corporate managers of Nordic publicly listed firms may utilize debt maturity as a tool to mitigate costs arising from agency problems.