Debt Maturity And Financing Decision

Since the MM theorem was established in 1950s, great progress has been made in corporate finance theory. In past 50 years, the focus was being turned from primary leverage to characteristics of debt structure, such as call option, sinking fund, debt maturity structure, and debt priority. The traditional theories of capital structure are to find what is the optimized leverage to ensure the maximization of corporate value, while the theories of debt maturity structure are to exam what mixture of debt maturity is the best to made the corporate value maximized. Typically, there are agency cost hypothesis, information asymmetry hypotheses, tax hypotheses, maturity matching theory and floatation cost hypothesis. Each theory gave the determinants of debt maturity in its own framework. In fact, corporate financial decisions are usually made after considering all these factors, some considered more and some less. Thus not all the hypotheses could be supported by empirical results. Generally speaking, agency costs, liquidity risk, interest rate volatility, and asset maturity are the main determinants of corporate debt maturity. In addition, industry dummy, economic and legal environment and other systematic factors can be used to explain the maturity differentiation cross country and industry.China is transferring from initial plan economy to market economy, and Chinese listed companies are being operated in a unique macro-micro environment. Through analyzing these uniqueness, the author holds that the debt maturity structure of Chinese listed company are mainly determined by agency costs and macroeconomic factors, such as the financial sectors' structure and the efficiency of the legal system.