Debt Maturity Structure, Corporate Performance And Growth

Agent-cost theory holds that high-growing companies should choose the debt term structure pattern in which short term debt prevails; signal-transferring theory holds that high-quality companies should choose more short term debt to prove their high quality. To test pertinent theories, we use multivariate regression models, exploring the effects of a set of factors including company growing character and performance on debt term structure, and what the effect of poor-performance companies' debt term structure on company growing factor. We differentiate firms by financial ratio and performance when we choose samples for empirical analysis. We use debt terms of high-debt-ratio companies and debt terms of better-performance companies as dependent variables to do our empirical analysis. We find that the better the growing character and the performance of one company, the longer the debt term of it. This differs from the agent-cost theory and the signal-transferring theory. All regression results which use debt term as depend variables show that the size of company, term of asset, debt ratio and quick-liquid ratio significantly affect the debt term in a positive way. Regression analysis which use growing character of bad-performance company shows that debt term of bad-performance company significantly affect the debt term in a positive way.China's scarcity of long term debt finance leads to China's specific relation between growing character, performance and debt term structure. Only through building up credit system for companies and vigorously developing debt market to satisfy Chinese companies' long term financial demand, can companies reach the optimal debt term structure which is most suitable for their growth.