Monetary Policy and Corporate Debt Maturity

Abstract

Does monetary policy influence the maturity structure of corporate debt? We answer this question exploiting: i) time-series and firm-level data on debt maturity for the US corporate sector; ii) several proxies of FED monetary interest rate shocks. Our results show that a loosening of the policy rate lengthens corporate debt maturity, an effect entirely driven by the adjustments of very large companies. We explain such findings through a model combining moral-hazard frictions and yield-seeking investors, who increase their demand of long-term debt-securities when the policy rate goes down. Only large and unconstrained companies can accommodate the demand shift. Empirical evidence on the response of corporate bonds’ issuance by large companies and holdings by mutual funds validates our proposed mechanism.