The Asymmetry Between Growth Opportunities and Debt Maturity Structure

Using the recent public health pandemic (COVID-19) as a laboratory experiment, I find evidence of an asymmetrical relation between a firm’s debt maturity structure choice and its growth opportunities. Firms with high pre-pandemic exposure to growth-inducing factors obtained from 10-K filings have increased debt maturity and are more likely to exercise a call on their callable bonds, while firms with high pre-pandemic exposure to growth-reducing factors are null in taking any actions to adjust their debt maturity structure. Further, the increase in debt maturity following exogenous changes in growth opportunities suggests a unique type of change in firms’ growth options following the recent pandemic, supporting the arguments proposed by Diamond and He (2014) and Childs, Mauer, and Ott (2005).