TITLE:
Leverage and the Maturity Structure of Debt in Emerging Markets
AUTHORS:
Cesario Mateus, Paulo Terra
KEYWORDS:
Capital Structure; Debt Maturity; Dynamic Panel Data Analysis; Latin America; Eastern Europe
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.3 No.3A,
October
25,
2013
ABSTRACT: The aim of this paper is to analyse for a multi-country large emerging market sample the choice between debt and equity simultaneously with the decision between short- and long-term debts. In order to investigate the joint decision among leverage and maturity, we examine an unique sample of 986 firms and 13,490 firm-year observations from Latin America and 686 firms and 7919 firm-year observations from Eastern Europe for the period 1990-2003. We employ dynamic panel data analysis using Generalized Method of moments. The empirical results support three main findings. First, the cross-effects between leverage and maturity behave exactly the opposite between Latin America and Eastern Europe sub-samples. Capital structure and debt maturity are policy complements in Latin America and substitutes in Eastern Europe. Second, there is a significant dynamic effects component in the determination of leverage and maturity. Finally, adjustment to the target, maturity is by no means costless and instantaneous with firm’s facing moderate adjustment costs.