Offshore Bonds and Maturity Diversification

This paper investigates whether firms are able to diversify the maturity structure of their bond profiles given the availability of the offshore bond markets. I look at average maturity, maturity structure, and the inverse of the Herfindahl index to explore the maturity diversification effect. I find that while the average maturity of offshore bonds is different from that of domestic bonds at the aggregate level, over the years, a firm issues new offshore bonds and new domestic bonds into similar maturity ranges. The degree of maturity diversification as measured by the inverse of the Herfindahl index is also lower in the years a firm issues new offshore bonds. By looking at how firms manage the yearly maturity structures of new and pre-existing offshore and domestic bonds, the study finds that new offshore bonds may diversify the maturity structure of pre-existing domestic bonds, but this happens only in the middle maturity ranges. Taken together, the study challenges the maturity diversification motivation and suggests that other motivations such as asset matching and foreign currency hedging also matter in bond maturity management with the presence of offshore bond markets