Brand capital on debt maturity structure

Abstract

This study examines whether brand capital is associated with debt maturity choice. For listed firms in the U.S. over the period from 1975 to 2019, we find that investment in brand capital through ongoing advertising outlays is positively related to the use of short-term debt. The result is consistent with the hypothesis that high brand capital firms use short-term debt because of beneficial signaling effects. We also find the positive effect of brand capital on the use of short-term debt is more pronounced for higher quality firms and firms with lower financial constraints, which provides further support for the signaling explanation. Finally, we show that brand capital decreases the extent to which investments are financed by using long-term debt and increases the extent to which investments are financed by using short-term debt and equity.