Shareholder Governance and Debt Maturity Structure

This paper studies how a company's debt maturity structure shapes shareholder governance. A large shareholder's exit signals adverse information via the public share price, resulting in an informational spillover to a firm's creditors. While long-term creditors' claims are fixed, short-term creditors can react quickly. By demanding higher credit spreads after an exit, short-term creditors amplify the effectiveness of exit to discipline management. However, short-term debt also reduces large shareholders' exit profits, potentially rendering the threat of exit empty and the share price uninformative. In the absence of short-term debt, the possibility to exit reduces large shareholders' incentives to engage in voice. By contrast, short-term debt can give rise to a complementarity of exit and voice. From a governance perspective, the optimal maturity structure features a mix of short-term and long-term debt. The model delivers novel empirical predictions on the relationship of a company's debt maturity structure to its governance, share price informativeness, and ownership structure.

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