Group affiliation and corporate debt maturity: Co-insurance or expropriation

Abstract

Purpose

We examine how business group affiliation affects corporate debt maturity.

Design/methodology/approach

This study employs the financial data of all listed Indian companies obtained from the CMIE database for 2011–2018. The ordinary least square, firm-fixed effect and Fama–Macbeth regression methods are used for empirical analysis. We use propensity score matching and difference-in-difference method to address endogeneity issues. Further, two-stage least square (2SLS) regression is performed to mitigate the endogeneity that stems from simultaneity between debt maturity and leverage.

Findings

Using Indian firms, we report that group affiliation is positively associated with corporate debt maturity; group firms use more long-term debt compared to similar standalone firms. We also observe that the positive effect of group affiliation on debt maturity is more pronounced in business group firms associated with a group having more resources and having unrelated diversification. However, information asymmetry and moral hazard problems weaken the impact of group affiliation on debt maturity structure of a firm. Overall, our results are consistent with co-insurance benefits that are an argument for the presence of business groups in emerging markets.

Originality/value

This study contributes to the existing literature by testing the role of group affiliation on corporate debt maturity decisions in the Indian market context where market imperfections persuade firms to borrow from banks. This is also the first study on determinants of corporate debt maturity that distinguishes between public and private debt.

Citation

Sur, J.K. and Chauhan, Y. (2021), "Group affiliation and corporate debt maturity: Co-insurance or expropriation", International Journal of Managerial Finance, Vol. 17 No. 5, pp. 687-707. https://doi.org/10.1108/IJMF-04-2020-0197