The Determinants and Implications of Matching Maturities

Though maturity matching is a common practice in real finance, no academic study has been conducted yet on cross-sectional variations in the degree of maturity matching. This study derives hypotheses on the maturity matching and empirically tests them. We show that firms with a higher degree of maturity matching are more likely to stabilize equity values: they have lower stock return volatilities. We also show evidence supporting the existence of an optimal level of maturity matching. Though financially strong firms generally employ a higher degree of maturity matching, the relationship between financial strength and maturity matching is not monotonic.