Short-term Debt Is More Costly Than You Think

A new study finds that investors want to be compensated, in the form of higher returns, for holding the stock of firms that have a relatively higher proportion of short-term debt, rather than long term debt.

In their new paper “Debt Refinancing and Equity Returns,” published online in the Journal of Finance, Florian Nagler, Assistant Professor of Finance at Bocconi, Niels Friewald (Norwegian School of Economics) and Christian Wagner (WU Vienna University) investigate one of the fundamental notions of corporate finance, that is, how debt affects stock returns.

They find that the traditional view that investors demand a premium for holding the stock of more highly levered firms could be expanded by considering the maturity structure of debt and not only the overall level of indebtedness.

http://www.knowledge.unibocconi.eu/notizia.php?idArt=24424

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