The relationship between debt maturity and cash holdings

Gonçalves, Sofia Maria Silva

http://hdl.handle.net/10400.14/55256

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Authors

Gonçalves, Sofia Maria Silva

Advisor(s)

Bonfim, Diana

Abstract(s)

The aim of this thesis is to examine the relationship between debt maturity and cash holdings in United States companies from 1980 to 2023. The hypothesis is that when the average debt maturity of a company is shorter, the cash reserves are larger for precautionary reasons. To analyse this, I study how debt characteristics and cash holdings evolve over time, finding that firms have been lengthening the maturity of their debt and increasing their cash reserves in recent years. The COVID-19 pandemic may have played a role in this. To further test my hypothesis, I use debt maturity, measured as the portion of long-term debt that is due in the next three year, as the dependent variable in a regression, with independent variables including firm characteristics and macroeconomic variables. A higher dependent variable value implies that a larger portion of the firm’s long-term debt is coming due in the near term suggesting that the average debt maturity is shorter. Additionally, I estimate a regression where the dependent variable is cash holdings. In both regressions, cash holdings and debt maturity are statistically significant and negatively related, suggesting that firms with higher cash holdings tend to have longer average debt maturities. However, a key limitation in this thesis is that debt maturity and cash holdings are likely determined simultaneously, making them endogenous. This suggests that the observed negative relationship may be driven by endogeneity rather than a true causal effect.

O objetivo desta tese é examinar a relação entre a maturidade da dívida e as reservas de dinheiro das empresas nos Estados Unidos de 1980 a 2023. A hipótese é que, quando a maturidade média da dívida de uma empresa é menor, as suas reservas de dinheiro são maiores por precaução. Para analisar esta relação, estudei a evolução das características da dívida e das reservas de dinheiro ao longo do tempo, constatando que, nos últimos anos, as empresas têm aumentado a maturidade da sua dívida e reforçado as reservas de liquidez, possivelmente devido à pandemia. Para testar a hipótese, utilizei a proporção da dívida de longo prazo com vencimento nos três anos seguintes como variável dependente numa regressão, incluindo como variáveis independentes características específicas das empresas e variáveis macroeconómicas. Um valor mais elevado da variável dependente implica que uma maior parte da dívida de longo prazo da empresa vencerá em breve, sugerindo uma maturidade média da dívida mais curta. Adicionalmente, elaborei uma regressão onde a variável dependente são as reservas de dinheiro. Em ambas as regressões, as reservas de dinheiro e a maturidade da dívida são estatisticamente significativas e negativamente relacionadas, sugerindo que as empresas com maiores reservas de dinheiro, tendem a ter maturidades médias da dívida mais longas. Contudo, uma limitação fundamental desta tese é que a maturidade da dívida e as reservas de liquidez são provavelmente determinadas simultaneamente, tornando-as endógenas. Assim, a relação negativa observada pode dever-se à endogeneidade, em vez de refletir um verdadeiro efeito causal.