Maturity Clienteles and Corporate Bond Maturities

Alexander W. Butler, Xiang Gao, and Cihan Uzmanoglu

The average maturity of newly issued corporate bonds has declined substantially over the past 40 years, and the traditional determinants of debt maturity fail to explain this decline fully.  We show that the changing composition of investors in the corporate bond market influences bond maturities. The results of a Granger causality test, an instrumental variable approach, and a natural experiment suggest that a decline in the insurance companies’ — which prefer long-term bonds — ownership share in the corporate bond market explains a significant part of the unexplained maturity decline. These findings illustrate how investor preferences can have real effects on corporations.