Debt maturity structure and stock price crash risk: Evidence of Vietnam.

Abstract

This study examines the impact of debt duration on the risk of future stock price collapses. We provide early evidence of a negative relationship between the use of short-term debt and the likelihood of a stock price collapse later on. This result is corroborated by a series of robust tests, including qualitative tests and the use of surrogate indices of debt maturity and failure risk, as well as a collective incremental approach. focus on new debt problems. Our results confirm the supervisory role of short-term debt as an effective tool to control management's hoarding of bad news, thereby minimizing the risk of stock price collapse. We also investigate whether the impact of short-term debt on the risk of collapse depends on corporate governance mechanisms and information inequality. Our results show that the collapse risk-reducing effect of short-term debt is more pronounced when firms have poorer governance ratios, lower shareholder rights, and (long-term) aid ownership. less than. We also see a negative relationship between short debt terms and a clearer risk of collapse for companies with higher asymmetric information. These results highlight the importance of short-term debt to companies with poor governance and higher information asymmetry. In other words, short-term debt can serve as an alternative to corporate governance in mitigating management's hoarding of bad news. Overall, our study complements a large body of research on the risk of stock price collapse as well as debt term structure. In the literature on the risk of collapse, our study is the first to provide evidence that corporate financial factors such as debt deadlines have a much more significant effect than many other factors identified by previous studies. In the debt term document, we provide evidence that companies can benefit from short-term debt due to its impact on reducing the risk of future stock price collapses, which demonstrates that “short-term debt terms can be an extremely powerful tool for managerial oversight” (Stulz, 2001 p. 172). Taken together, these results provide us with a deeper understanding of how debt financing and lenders can contribute to corporate governance and reduce the cost of representation. Our research shows that the debt term structure allows loans to limit managers' violations, thereby contributing to shareholder value appreciation through minimizing the risk of stock price collapse.